There is a very small percentage of the population that belongs to the financial independence/ early retirement community.  Some might call it a movement.  I don’t know if such a movement exists outside of the United States, but I would expect it to be smaller.

While there is no set definition, we aren’t really talking about somebody retiring at the age of 60 instead of 65.  There are some people in their 30’s who have claimed the mantle of early retirement.

But just as people in their 30’s and 40’s have claimed a status of early retirement, there are critics out there who say that many of these people aren’t actually retired.  These critics have been referred to as the Internet Retirement Police (IRP).

Mr. Money Mustache is one of the most famous leaders of the early retirement community.  His blog is very popular.  He wrote a post back in 2013 about the Internet Retirement Police.

The post is somewhat sarcastic in its own right, as Mr. Money Mustache is mocking the very people who are mocking him or those within the early retirement community.  He is basically saying that if you make any money from any kind of job or side business that the IRP will show up and say that you aren’t really retired.

I am not here to defend the entire IRP.  There are always people out there who will be critical of anything.  I am not trying to defend every criticism made against the early retirement community.

Still, I think that the IRP (maybe I am part of this group now) has some valid points that we can learn from.  It seems reasonable to be skeptical of somebody who claims (and probably brags) about early retirement yet is still making a lot of money from current work.

Here we get to a definition of “retirement”.  Mr. Money Mustaches states in his post: “Retired probably does not mean you sit at home watching TV, venturing out only for medication or a motorized-cart-aided round of golf.”  On this, I agree that retirement doesn’t mean you have to sit around and basically do nothing.

Still, I think some people are too loose with the term.

Mr. Money Mustache mockingly states: “It’s a shame we don’t have a better name for all this stuff we’re doing as Mustachians.  Retirement doesn’t sound right.  Financial independence comes closer.  Can we invent a new word for it?  How about Removed?”

He continues: “News Flash: the perfect word has already been invented.  Are you ready to hear it?  Here it is: Retired.”

He continues: “It’s perfect just as it is.  It’s just like ‘Financially Independent’, but it sounds more amazing and it uses 75% fewer syllables.”

The problem is – and this is where the IRP get it right – the term is simply not accurate in many cases.

Mr. Money Mustache then defines “retired” in his next paragraph: “‘Retired’ means you no longer have to work for money, and you are aware of this fact.  You can then proceed to do whatever you want, as long as you do it consciously and of your own accord.  If you meet this condition, and you feel retired, congratulations, you are.”

The problem is that it is not true for many people in their 30’s and 40’s who claim this status that they can afford to never work again.  They have the ability to tell their boss to shove it because they have enough money and a low enough standard of living that they could afford to live off of savings for five or more years.  But if someone is age 35 and ends up living to the age of 85, does he really have enough money to never earn another dollar (not counting the earnings from his investments) for another 50 years?

Many in the early retirement community advocate the 4% rule.  Your annual expenses should equal 4% of your total savings/ investments for you to retire.  Take what you spend in a year and multiply it by 25.  This is your early retirement figure.  If you spend $50,000 per year, then you need $1.25 million.

But we don’t really know this to be true.  We have no idea what the economy will be like over the next several decades.  What if the U.S. stock market ends up like the Japanese stock market of the last three decades?  If you invested in the Japanese market in 1989, you are still down by about half nearly three decades later.

And what if we have severe price inflation?  Are all of these early retirees invested heavily in gold and other inflation hedges?  What if there is double-digit price inflation at the same time as a down stock market?  Many people will be throwing their retirement plans out the window.

For Mr. Money Mustache, I really have no idea what his situation was when he “retired” and what it is now.  I know that his blog gets a lot of traffic and that he is making well into six figures with it (one 2016 story put his earnings at about $400,000 per year).  There is absolutely nothing wrong with this, and I think it is great that he can enjoy his life and do something he enjoys and is passionate about while also helping others.  With that said, I just don’t really like the word “retired”.

I prefer the term “financial independence” or “financially independent”, so I am one of the people that he is speaking to in his post from several years ago.  I don’t care if “financially independent” has more syllables because it is more accurate in most cases.

It is not about retiring in your 30’s or 40’s; it is about having freedom.

Mr. Money Mustache had the freedom to quit his cubicle job while in his 30’s and explore things he was passionate about.  His blog took off, and he is better off for it.  If his blog had gone nowhere, he probably would have found something else to do that he likes that could supplement his income.  Again, there is absolutely nothing wrong with this, but I do have a point of contention with the word retirement.

I really have no idea how much he had when he first “retired”, but I have my doubts that Mr. Money Mustache could have gone 50 plus years living on just his savings and investment income up until that point.

I think being financially independent is a worthy goal, and there is much to learn from others who strive (or have already achieved) this status.  Even if you could officially retire (never work for money again), I don’t know if it is a good goal anyway.  Are you really going to sit around and do leisure activities for the rest of your life starting in your 30’s?

Most multi-millionaire/ billionaire businessmen continue to work in some capacity even though they could easily retire.  They aren’t still in the game so that they can spend more money.  Maybe it is a game to accumulate more money, but it probably isn’t for consumption.

I don’t really believe that early retirement should be a goal.  If you have ambition, you are still going to want to achieve things.  Your goal should be financial independence so that you can pursue things that you are passionate about.

You can call me part of the Internet Retirement Police if you want, but I am calling out those who call themselves ” permanently retired” who really are not able to never work for money again.  If you only have 25 times your annual expenses saved up and you are going to live another 40 or 50 years, I don’t think you are officially retired.  You don’t know what your rate of return will be.  You don’t know what your expenses will be in the future.  You don’t know what tax rates will be.  You don’t know what inflation will be in the future.

We live in a great world where it is actually possible for a few people to officially retire at a very early age.  It is even better where people can achieve financial independence and seek work that they enjoy.  This was mostly not possible 100 years ago.  It certainly was not possible 1,000 years ago unless you were royalty.  Even then, it was mostly a miserable life.

In conclusion, I think definitions can matter.  I see many in the early retirement/ financial independence movement as smart people.  However, I don’t think most of them are actually permanently retired in their 30’s or 40’s.  There is nothing wrong with this, but they shouldn’t mislead people into believing that they could go on never working for money again.  That is why I prefer the term financial independence.

In a relatively free market with no federal income tax, a 401k plan would be meaningless.  The 401k plan is essentially a loophole in the tax code that allows you to contribute pre-tax dollars.  You can grow your money tax-free until you withdraw it.  In exchange for this tax benefit, the government and your employer maintain certain controls (rules) that you must follow.

There are good arguments to be made for contributing to a 401k plan.  These include tax deferment, a company match, and an easy way to contribute (payroll deduction).  This is not a list to instruct you to not contribute to a 401k plan.  These are just reasons on why you might consider not contributing.

Some of the reasons might be similar or overlap, but they are all legitimate reasons on why someone might not want to contribute to a traditional 401k plan, even if their company matches contributions.

Here are 10 reasons not to contribute to a 401k plan.

1. If you are still employed with the employer that sponsors your 401k plan, then in most cases you cannot withdraw your money before age 59½.  If you really want your money, you will have to quit your job.  Therefore, a 401k is completely illiquid for most people.  I would rather have $20,000 in the bank than $25,000 sitting in a 401k plan that I can’t touch.
2. If you no longer work for your employer that sponsors your plan, then you will still pay a 10% penalty (plus taxes) for a withdrawal if you are younger than 59½.
3. Instead of contributing to a 401k plan, you could use that money to start a business or some kind of venture that would generate income.  Imagine if Bill Gates or Steve Jobs had taken the little money they had when they were young and put it into a retirement account instead of using it to start their businesses.
4. Instead of contributing to a 401k plan, you could use that money to buy a house (either to live in or to rent out).  While there are pros and cons to buying real estate, some people would find themselves better off using any excess money to put into real estate.
5. You are vulnerable to any changes in the law at any time.  Congress could pass a law that raises the age for withdrawal.  The government could require that you use a certain percentage to buy U.S. Treasuries.  The government could impose a wealth tax that would subject 401k investments to a special one-time tax (or more).  This, of course, would all be done in the name of helping the poor or helping the country in a time of need.
6. To go along with number 5 above, there could be a change in the marginal income tax rates at any time.  The tax code changes at some point with almost every presidential administration.  If tax rates are 45% when you retire with your 401k, your tax deferral all of a sudden doesn’t seem that brilliant.
7. You are usually forced into buying specific mutual funds in a 401k plan.  Perhaps you have a good plan where you can choose almost any mutual fund.  Still, you probably can’t buy exchange traded funds (ETFs).  You almost certainly can’t buy options.  And there is no possible way you are going to buy any physical gold with your 401k funds.
8. Some people simply don’t have any money and are living paycheck to paycheck.  The government has ruined medical care, as insurance premiums continue to skyrocket.  The government spends so much money (misallocates resources) and regulates virtually everything to such a high degree, that lower class and middle class America is basically broke.  We are certainly better off in terms of technology, but the reality is that most middle class families are scraping by and have little in the way of savings. It is easy to say that they should save, but life is expensive.  It is better to not contribute to your 401k plan than to stress out about how you are going to pay for groceries this week.
9. If someone is deep in debt, then that person is likely better off paying off their high-interest debt (credit cards, student loans) than putting this money into a 401k plan.  You can easily pay 18% interest on credit card debt.  After your company match, good luck getting anything close to a return of 18% (let alone half that) with your 401k funds.
10. To go along with several of the points above, there are opportunity costs with contributing to a 401k plan.  You are locking up your money that could be used in other ways in the present.  You could pay down your mortgage (guaranteed rate of return).  You could get a certification that would advance your career and increase your salary.  You could buy a piece of software or equipment that would allow you to increase your skills and productivity.  If any kind of investment opportunity unexpectedly showed up, you could consider it because you have liquid cash.  If your friend shows up at your door and is looking for an investment for his new great software program that is going to revolutionize the world, you can tell him that your money is locked up in your 401k retirement account.  Maybe it will work out for you because his software idea didn’t take off.  Or maybe he will end up a multi-millionaire while you are waiting another few decades to access “your” funds in the company 401k plan.

Again, these are just considerations to take into account.  Every person and their situation is different.  You have to decide for yourself if contributing to a 401k plan is the right decision for you.

Bloomberg recently ran a story on the hot housing market in Toronto.  While it is seemingly good times for those who own real estate there, it also shows all of the classic signs of a bubble that will eventually burst.

The one big problem with predicting bubbles, as with other investments, is timing.  Even if we can accurately predict that there is a bubble, we don’t know when it will burst.  We don’t know how much longer and further it will go higher.

If I owned real estate in Toronto right about now, I would think about selling.  Prices are up 33% from last year.  The average price of a detached downtown home is almost 1.6 million Canadian dollars.  That is about 1.2 million U.S. dollars.  Even the average price for all homes in the Toronto area is getting close to one million Canadian dollars.

This is simply unsustainable.  If you are an American, you may not think this applies to you.  But Canada seems to resemble the U.S. in many ways.  The policies of the two countries are often similar.  There is probably more military spending (per capita) in the U.S. and more domestic welfare spending in Canada (per capita).  But overall, policies are somewhat similar, including central bank policy.

The U.S. dollar has been really strong for the last few years.  The U.S. and Canadian dollars hit parity a several years ago though.  This trend reversed back in favor of the U.S. dollar around 2012.

Not all of Canada is in a real estate bubble, or at least not anywhere close to Toronto.  Vancouver is another Canadian city that is likely in a major real estate bubble.

It is no different in the U.S.  Major cities in California are in a big bubble.  Some of this is due to rent control, zoning laws, and other regulations.  Some of it is just hot money flowing into real estate.  In Silicon Valley, the tech boom helps fuel the real estate boom.  And it is no surprise that Hollywood has a lot of money to bid up prices in that area.

If I lived in California, I would move, unless I had a really great job there.  I don’t see how it is worth it to most people.  I understand that some people love the lifestyle and the culture.  Leftists want to be around leftists, but I know that it goes beyond the politics.  I also understand that some people stay there because of family and the weather.

While you can make a higher than average income in San Francisco and Toronto (to use two examples of major housing bubbles), you have to really be earning a lot to make it worth it.  Why would someone pay $3,000 per month in rent – or higher for a mortgage – to live somewhere?  You could find someplace a bit less expensive, but then why would you live in a tiny apartment and still fork over a lot each month?  What kind of lifestyle is that?

In the long run, this is not sustainable.  The last housing bubble in the U.S. started to pop about 10 years ago.  It wasn’t that long ago.  Yet, here we are again in some areas with prices going up sky high.

I think the current real estate bubble is more local than the last time.  Last time, most of the country was hit hard.  The next time around, only certain cities will get hit hard.  Everyone may get hit hard by a recession, but I don’t think house prices are going to get cut in half as they did in many cities last time around.

It is still a good test to compare rents to mortgage payments.  If you are planning to stay in one spot, then you can add up the costs of getting a house.  This includes mortgage, insurance, taxes, any association fees, and an estimate for repairs.  Make sure to account for repairs.  I just spent over $1,300 to fix an air conditioner, so don’t neglect this.  When you add up all of your monthly costs, is it still less than you would pay for rent for a comparable place?

Sometimes renting can make financial sense.  If you live in Toronto or San Francisco, it probably makes sense right now.  It makes more sense to live in a cheaper area with a lifestyle you still enjoy.

I didn’t vote for Donald Trump, and I didn’t expect great things out of him.  Still, I was hoping for a little bit of change (for the better) on the margin.

I can officially say now that Trump has blood on his hands.  I know that bombs have been dropping on his watch since he became president in January, but I give a little bit of leeway in the fact that it was all a continuation of the previous administration.  The whole government, which includes the war faction, has a life of its own.  This is why the term “deep state” has become more popular.  People are realizing that it doesn’t really matter who the top figurehead is.  Sure, he could have ordered a withdrawal of all troops from overseas immediately, but I was still giving him a little bit of the benefit of the doubt.

After reports alleging that Assad’s government in Syria used chemical weapons to kill innocent people, Trump ordered missile strikes in Syria.  He is falling right in line with his enemies, and he is also going against many things he said in the past.

When Assad was accused of using chemical weapons back in 2013, Trump stated that the U.S. government should not get involved.  And during his recent campaign, Trump said that Assad and the Russians were taking care of ISIS, so we should just step away and let them do the dirty work.

But just as George W. Bush called for a more humble foreign policy in his 2000 campaign, and Barack Obama was supposedly going to be the peace president, Donald Trump has fallen right in line with his predecessors.  He has backed off on his talk about peace and is joining the war hawks.  Now he will join his enemies in trying to overthrow the secular Assad regime.  If any dictator in the Middle East keeps order and allows Christians to live there, then it has become U.S. policy to get rid of that dictator and cause total chaos in the region.  U.S. foreign policy has murdered and ruined the lives of more Christians by causing war, destruction, and total chaos than any foreign dictator could have hoped to do.

While Trump’s enemies demonize Steve Bannon, it was actually Bannon that supposedly arranged for Trump to meet with Congresswoman Tulsi Gabbard.  On foreign policy, Gabbard is brilliant.  She understands both the immorality and the stupidity of trying to overthrow Assad in Syria.  Since Trump met with her, I know he has heard the other side of the story, but he is choosing to ignore it.

These allegations, just as past allegations against Assad, are likely false.  It is more lies put out by the pro war establishment.  These are the same liars who told us about weapons of mass destruction in Iraq.  These are the same liars who try to get us involved in almost any war.

Assad is being set up again.  There are few, if any, reasons why he would use chemical weapons on innocent people.  There are many reasons he wouldn’t want to do such a thing.  It is likely that it was Assad’s enemies who set this up.  The question is whether the set up is from the Islamic radicals trying to overthrow him, or the U.S. government, or both.

Even though I don’t agree with Trump on many things, I have defended him in the past up to a certain point.

When Trump critics would accuse him of being mean to women or being anti-immigrant, I would point out that it is better than bombing and killing innocent people.  Now when they accuse him of being mean to women or being anti-immigrant, I will respond that it means little as compared to his bombing and killing of innocent people.

Not only is Trump’s attack on Syria immoral and bad policy, it is also politically stupid.  Now Trump is allied with the same people who have constantly tried to crush him.  Does he not think they will try to crush him again when given the chance?

Trump supported the horrible “RyanCare” bill and ended up in a fight with the Freedom Caucus.  He teamed up with Paul Ryan, one of his enemies, to push a bill that many of his supporters did not like.

Now Trump is teaming up with the entire establishment in waging war against Syria.  He is also showing his dictator/ authoritarian tendencies in not even consulting Congress.  He should be impeached (as many of his predecessors should have been) for waging an undeclared war.  He really should be going to jail for killing innocent people too, but I realize that is an even more remote possibility.  Bush and Obama should both be in prison serving many life sentences for the hundreds of thousands (millions?) who died from their wrath.

I’m sure some Trump supporters will stand by Trump on this attack on Syria.  But there are some libertarians, and even some conservatives, who supported Trump in large part because he gave some hope for a more peaceful foreign policy.  So much for “America First”.  I guess it is now “Syria First”.

Trump was also supposed to be the anti-establishment candidate.  On the repeal of Obamacare, and now on Syria, Trump has fallen right in line with the establishment.  He has become part of what he campaigned against.  Trump is now part of the swamp.

Nobody, especially libertarians, should be surprised.  Still, the whole thing is disheartening.  I held out a little bit of hope that Trump might be marginally better on this one issue.  I knew he was bad on economics and other issues, but I was hoping that maybe he would scale down the war machine a bit.  Instead, we are right back to more war and more killing.  The old wars continue to drag on while Trump will get us bogged down into another one.

More innocent people will die, and more terrorists will be created from it all.  When people are bombed, and they have friends and relatives die, and they watch their whole lives turn to chaos, they tend to get mad at the instigators of it all.  And if the U.S. hadn’t gone into Iraq, and hadn’t gotten involved in Syria, then Syria would likely be a relatively peaceful place to live right now.

Trump is either immoral or a total buffoon.  My hope is the latter, but he may just be both.

Legislation to audit the Federal Reserve was approved by a House committee recently.  Congressman Thomas Massie of Kentucky is a sponsor of the bill that would require the Government Accountability Office (GAO) to perform an audit of the Fed.

Of course, it was Ron Paul who originated this push to audit the Fed. While we can’t be sure of what would come out of an audit of the Fed, any exposure of the central bank would seem to be a positive step.  My one fear with such an audit is that it exposes enough corruption that discussions begin about Congress taking over the role of running the country’s monetary policy.

If there is one thing worse than the Fed running the monetary policy, it would be Congress doing it.  While I am not one to speak of a likelihood of hyperinflation, a monetary policy run by Congress might actually threaten a third-world policy of hyperinflation.  We already know how Congress runs up the national debt by spending recklessly.

Instead of “Audit the Fed”, I think there is better legislation that could move us towards liberty.  The best thing would be a repeal of legal tender laws and an exemption from capital gains taxes for gold and silver.  We need competition.  If Fed officials knew that they had competition, they might be more conservative in their monetary policy.  And if they weren’t careful, other forms of money could threaten to replace the U.S. dollar, which would also threaten all of the power of the central bankers.  It would also threaten the deficit spending ways of Congress.

With that said, what we have before us is a possible passing of this legislation to audit the Fed.  With Republican majorities in the House and Senate, and with Trump as president, it is all of a sudden a real possibility.  While statists like John McCain and Lindsey Graham are opposed to such legislation, politically they might have to go along with it.

Meanwhile, most of the Democrats are against an audit of the Fed.  These are supposed to be representatives of the people, particularly the little people.  Yet they are defending the actions of a secretive central bank that provides massive bailouts for the big banks.  I hope the Democratic constituents really feel taken care of.

While I am not predicting passage of this legislation, it is more likely now than ever.  So if it does pass, what would that mean for us?  More specifically, what would that mean for the price of gold?

We don’t know what would be found in an audit.  It isn’t a bunch of Austrian school economists who would be doing the auditing.  It would be a government watchdog.  We can be sure that the auditors would not be completely independent from politics.

Still, any exposure could do damage to the Fed and its ability to set policy.  The Fed is already on the ropes, at least to a greater degree than in its history of slightly more than 100 years.  The Ron Paul presidential campaigns and the Internet have served us greater criticism of the Fed than we could have imagined 10 years ago.

Anything that calls the Fed into question is likely to be bullish for gold.  It is possible that it could work the other way though.  The Fed might feel more timid and be tighter with its monetary policy, thus being bearish for gold.  But the more likely scenario is that the Fed will continue doing what it does while more people become skeptical of the central bank.  This could draw more people into buying gold.

The one big thing I want to see is an audit of the gold holdings of the Federal Reserve.  I doubt it will happen any time soon, but this would be the big bombshell.  Does the Fed actually have the gold that it says it has?  Has the Fed sold or leased out gold to other parties?

If there were an audit of the gold held by the Fed and the holdings came up short, then I would expect the price of gold (in terms of U.S. dollars) to skyrocket.  This would also be quite bearish for the dollar, as people would lose confidence in the world’s reserve currency.

Although the dollar is not backed by gold (and hasn’t been for some time), there is still something of an implicit backing.  That is why central banks own gold.  It maintains a sense of confidence in the fiat currency issued by the central bank.

In conclusion, I don’t expect any immediate spikes in the gold price even if such legislation were to pass.  If there is an audit of the gold holdings, then things become more interesting.  Still, if anything, I think this legislation is slightly bullish for gold as it calls the central bank into question.

I recently listened to a Friday roundup episode of the ChooseFI podcast.  I was surprised that comments I had recently made were discussed by Jonathan and Brad, the two hosts of the show.

I first heard these two as guests on the Radical Personal Finance podcast.  I left a comment for that show, and I also wrote a blog post discussing it.  While I had a couple of criticisms (constructive) of what was said (or perhaps not said), I am obviously still listening to the podcast, as I find value in it.

I think Jonathan and Brad took this as constructive criticism, as they used my remarks to clarify their thoughts and to add to what they had previously said.

My two main points:

1. Don’t take a high income for granted in achieving financial independence.
2. I wish they would have explored ways to make a good income without going into debt for college.

On the second point, I agree that there are better ways to make a high income without taking on big student loans.  Whether or not this means going to college at all is another topic for discussion.

On the first point, it was stated by one of the hosts of the ChooseFI podcast that they will be discussing more about playing offense in the future.

I can understand having a podcast that focuses more on playing defense (saving money by cutting expenses) than on playing offense (earning more money).  It is easier to find common ground with cutting expenses.  Almost everybody deals with buying (or not buying) cars, houses, cable television, and $5 lattes.

When discussing earning more money, it is hard to find common ground with a broad audience.  They did a show on real estate investing, but it gets harder when it comes to finding a better job or starting a side business.  But while this may make for a tougher show, we shouldn’t take a high income for granted.

My blog here frequently discusses economic trends and investments to protect the wealth you have already accumulated.  But I try to stress (perhaps not often enough) that your main source of income is the most important aspect of your financial life unless you have a really significant net worth.

If someone has $200,000 in assets and makes a bad investment that loses him $20,000 in a year, he is obviously not going to be happy.  But it is a minor setback.  If that same person lost his job paying $100,000 per year, that will be a much bigger blow.  Even if he finds another job paying $80,000 per year, he will be “losing” $20,000 every year compared to before.

So while it is important to protect your wealth through smart investing, it is even more important to invest in yourself and protecting your income.  If you are nearing retirement or if you have a large net worth (at least one million dollars), then this may not apply as much.

If you really want to achieve financial independence quickly, you need to play offense.  You have to make a decent income whether this is through a business or a well-paying job.  Defense is still important in that you don’t spend the extra money that you make.

If you can live a middle class lifestyle on an upper middle class (or upper class) income, then you will be well on your way.

I hate to state the obvious here, but sometimes the obvious has to be stated.  If you want to accumulate significant wealth, you aren’t going to do it by paying interest.  You have to collect interest.

When I use the term “interest”, it can really be any kind of investment return.  You pay interest to a bank if you take out a loan from that bank.  You earn interest (although not very much these days) from a bank when you lend your money to the bank in many cases.

But you can also get a return on your money (similar to collecting interest) in an investment.  The potential interest or investment return typically correlates with the risk involved.  If you stand to make a lot of money off of an investment, there are usually greater risks for losing the money you invest.

My issue is when I hear people say things such as, “I decided to buy a bigger house because interest rates are low and it will be a great investment in the long run.”

If you bought real estate in California three decades ago (or even 8 years ago), this would have been mostly true except that interest rates weren’t as low then.  But taking away from the boom periods in housing, buying a house is a consumer good.  If you take out a larger loan to buy a bigger house, then you will be paying more interest to the bank.  You will also be paying higher property taxes and more for upkeep.

There is nothing wrong with buying a bigger house, but it should be because you want it for what is essentially a consumption item.  You want to enjoy where you live.  Unless you get lucky with a real estate boom in your area, then it is not an investment.

This holds even more true for most other consumable items.  If you buy a nicer car than necessary, then you are just paying more for a consumable good (you only need a working car for the purpose of transportation).  If you take out a loan, you will be paying more in interest.

You don’t get rich by paying interest.  You get rich by collecting interest (or investment returns).

There are some people who have gotten rich off of investment real estate.  You may say, “Well, they took out big loans and paid a lot of interest, yet they made out really well.”  But the key here is that they collected more in investment returns (from renters) than they were paying out in interest.  The successful real estate investors usually get positive cash flow, meaning their returns are greater than their expenses.

You get rich by owning assets that produce cash flow.  This can be stocks, bonds, real estate, or a successful business.

This may sound funny coming from a guy who advocates gold.  But I’ve never claimed that anyone is going to get super rich from investing in gold.  You can get a positive real return on gold during times of significant inflation, but the primary reasons I advocate owning gold are for insurance and diversification.

Again, my key takeaway here is that you are not likely to get rich if you are continually paying interest to someone else, unless it is for a loan that is generating even more income.

In most cases, people take out loans for consumer goods.  The biggest trick is housing because people delude themselves into thinking it is a good investment when it usually isn’t.  They justify a big mortgage saying that they can deduct the interest paid on their income tax return.  This has to be one of the worst reasons possible for getting a big mortgage and paying interest to the bank.

If you want to accumulate significant wealth, don’t keep paying out interest.  Even in an inflationary environment, it doesn’t do you much good unless the underlying asset is increasing significantly.  Even if you are paying back a loan in depreciating dollars, you are still the one paying the interest.

You don’t get rich by paying interest.  You get rich by owning assets that collect interest for you.

Since Donald Trump was elected president, I have stated often that the biggest test for both Trump and the Republicans will be whether or not they repeal Obamacare.

We have heard this “repeal and replace” nonsense since before Mitt Romney was the Republican nominee over 4 years ago.  Romney had to run on that platform because he instituted something similar to Obamacare in Massachusetts before Obamacare ever existed.  It made it tough for Romney to go after the entire legislation.  He couldn’t make comments to the effect of “How could anyone be so stupid or so tyrannical as to force people to buy something?”

Since the Republican electorate’s blunder of putting Romney up as the nominee, we have heard “repeal and replace” a lot.  But we didn’t often hear specifics on what the “replace” part would look like.

We finally found out recently with the legislation pushed by Paul Ryan.  It became known by many as Obamacare lite.

The House Republicans have pushed legislation for an outright repeal of the so-called Affordable Care Act for many years now.  Just last year, a bill finally reached Obama’s desk, which was promptly vetoed.  The Republicans thought they had no risk of sending such a bill to Obama’s desk because they knew he would just veto it.  But they thought wrong because now much of the country – at least those who are somewhat informed – see the Republicans in Congress as a bunch of hypocrites.  Now that Trump is president, they aren’t voting on a bill for a full repeal.

Trump also looks foolish at this point.  I know some will laugh at that remark, as half the country thinks he is foolish anyway.  But he did get elected, even if he did not officially win the popular vote.  He was elected because he took his message to the people and claimed to be an advocate of the average working American.  He showed some empathy for the suffering middle class.

But one of the main reasons for the suffering middle class is the unbelievably high cost of health insurance.  When a family of four is paying $10,000 or more per year for a policy that barely covers anything, that really puts a dent in their family budget.  It makes it tough to take vacations, save money for retirement, or just get braces for the kids.

Of course, the entire government apparatus is a major problem as the federal government alone sucks up close to a quarter of our income.  Then it burdens us more with regulations on almost everything.  When you add up state, local, and federal spending, the total government spending is about the same as the median income for a family.

Trump has been decent so far in terms of advocating fewer regulations.  But on the spending side, he has been mostly terrible.  His little proposed cuts in domestic spending were offset by more military spending.

Despite all of that, the one major thing that Trump has to get right over the next 4 years is a lowering of health insurance premiums and medical care costs in general.  If costs continue to go higher, even at a slower rate, then Trump is going to be smashed in the next election.

The people who voted for Trump want to see some real results.  They took a risk with Trump.  Or maybe they didn’t take a risk in the sense that they figured he couldn’t do any worse than the typical politician.  But if Trump ends up being something like a typical politician, then he will surely lose the next time around.  I am not saying that his supporters will be voting for Elizabeth Warren or whoever is the Democratic nominee, but some of his current supporters may get turned off of politics and stay home.

Trump made a massive mistake in working with the snake that is Paul Ryan.  Perhaps that is an insult to snakes.

Trump really messed up this week when his administration basically said that if this legislation doesn’t pass, then Obamacare is here to stay.  If that was supposed to be some kind of threat to the thirty or so conservatives in the House who oppose the Ryan bill, then they called his bluff really quickly.

If Trump had been smart, he would have proposed his own bill.  He should have been working on it between the day after the election and his inauguration.  It should have been a full repeal.  He could have added in proposals to allow health insurance to be sold across state lines.  He could have added in tax credits and expanded HSA accounts.  Regardless, he needed a full repeal first.

Trump lost a lot of points in this political battle.  This is still his first 100 days and he completely blew it.  If he does not get Obamacare fully repealed, he is almost guaranteed to lose the next election if he even runs.

Paul Ryan also failed miserably.   I am happy about this.  He deserves to go down.  He is the typical Republican politician who campaigned for smaller government and fiscal conservatism.  He claimed to be a follower of Ayn Rand.  He got into power and became a hack and a shill for big government.

This was the biggest test for the Republicans and they just failed.  The fiscal conservatives who stood against the Ryan bill won this battle.  This probably won’t be the end of it.  If it is, then the Republicans are going down in less than two years and Trump is going down in 2020.

The yield curve has been flattening slightly in the month of March.  First, let’s look at the numbers.

I looked at the yields posted by the Treasury.  On March 1, 2017, the one-month rate was. 0.46%.  On March 22, 2017, it had gone up to 0.74%.  During that same time period, the 30-year rate fell slightly from 3.06% to 3.02%.  The 10-year rate fell from 2.46% to 2.40%.

The longer-term rates had actually been going up in the early part of the month, but then started falling around the middle of the month.  When stocks took a tumble this week, the long-term rates fell, while the short-term rates continued upwards.

An inverted yield curve – where long-term rates fall below short-term rates – is a major recession indicator.  Investors are locking in long-term rates, while short-term borrowing is higher in demand.

We are still far away from an inverted yield curve, but a flattening can signal trouble ahead.  It is hard to say whether or not this is just a blip that will reverse.

If I were Trump, I would stop bragging about the stock market or any positive economic indicators for that matter.  When you live by the sword, you also die by the sword.

Trump was warning during his campaign last year that stocks were in a bubble.  If he kept his mouth shut now, at least he could point to those remarks if there is a major downturn.  But if he keeps bragging about stocks hitting new highs, it is going to completely negate any earlier comments where he warned of a possible bubble.  After all, if he claims any credit now for any good news, then he has to take the blame when bad news hits.

Even though we appear to be in something of a mini-boom right now, at least for some assets, this can quickly change.  The Fed has kept a tight monetary policy for the last two and a half years.  QE3 ended in October 2014.  While the increase in short-term rates is not a complete game changer yet, it does not help the economic picture.

From my perspective, we need a correction, even though it will be painful.  It is better to have the correction now than to delay it and have it even worse in the future.  Resources have been misallocated due to previous Fed money creation.  A correction is what is needed in order to reallocate resources to their best use in accordance with consumer demand.  We also likely need a higher savings rate than what currently exists.

Sustainable economic growth comes from production.  Production comes from savings and capital investment.  But the production has to be in accordance with consumer demand, which happens in a free market.  If things are being produced that are not part of our highest priorities as consumers, then it makes us poorer than we otherwise would have been.

It is important that when we do get a correction that the Fed and the government do not try to “fix it”.  They need to let the resources reallocate properly.  Otherwise, they will set us up for more trouble in the future.

Unfortunately, if we hit a major downturn, I don’t think the Fed will do nothing.  They will return to digital money printing.  That is the biggest reason to own some gold as part of your investments.

Donald Trump’s administration released a preliminary budget proposal for FY 2018.  This budget year begins on October 1, 2017.

There is predictably wailing and crying from the left about massive budget cuts.  When politicians complain about budget cuts, these are usually just cuts in the rate of projected growth.  In the case of Trump’s budget proposal, there are actual cuts in many departments and government programs.

But before the libertarians and fiscal conservatives out there get too excited, the overall picture doesn’t look so good.  While many of the departments would experience budget cuts if Trump has his way, there are a few areas that aren’t being cut, or are being increased.

The Department of Veterans Affairs (+6%), the Department of Homeland Security (+7%), and the Defense Department (+9%) would all see increases under Trump’s budget.  Meanwhile, we don’t hear much spoken about the supposed non-discretionary spending of Medicare, Medicaid, and Social Security, which were not part of Trump’s recent proposal.  Of course, these are discretionary, but they are non-discretionary to politicians and most of the electorate.

The problem here is that Medicare, Medicaid, Social Security, military spending, and interest on the national debt account for over 80% of the total federal budget.  If this is going up, then the overall picture doesn’t look good for spending critics, even if much of the rest of the 20% is seeing some actual cuts.

The bottom line is that the total federal budget will still come in around $4 trillion if Trump’s proposal were enacted.  This would simply shift some spending from mostly domestic programs to military spending.  And while the domestic programs are certainly wasteful and a misallocation of resources, the military spending is usually worse.

If you reduce or eliminate grants for teacher training, loan guarantees for alternative energy, funding for the arts, and climate change prevention programs (among many things), then all libertarians should be able to cheer this.  Whether or not you think these are noble causes is irrelevant to the libertarian who does not see it as a function of government if the state is to have any function at all.

These programs are harmful to our living standards as they misdirect resources away from higher priorities for consumers.

However, some military spending is far worse in that it is completely wasteful or actually destructive.  If more money is spent to fight more wars, then this is destructive both in terms of lives and wealth (as well as civil liberties in many cases).  Even if money is spent on tanks and helicopters for more drills and bases in faraway lands, it is still a waste of resources.

At least with some domestic spending, there is some benefit at times.  Sure, the government destroys the education system and the medical care system, but at least some expenditures are useful, even if they are a misallocation of resources.  The government could spend money to buy everyone in the country a new television.  Some people don’t want or need a new television.  If anyone wants a new television, they could go out and buy it themselves instead of having the government do it for them.  But if such a government program existed, at least there would be some use for the resources, even if they are misdirected.  In the case of much of the military spending, it is completely wasteful or outright destructive.

Virtually all government spending is a misallocation of resources.  It is impossible for the government or anyone else to match up consumer preferences except for the consumers themselves.

The federal government, under Trump’s proposal, would continue to spend $4 trillion annually.  The government is sucking up resources that could be put to better use.  Of course, the government also destroys wealth and prevents future wealth creation through its tens of thousands of pages of rules and regulations.

The scary thing about Trump’s proposal is that it is just a starting point.  The way bipartisanship works in Washington DC is that both sides compromise by giving each side the bigger government they want.  The different sides will come to an agreement to allow the increased spending for the military while reducing the cuts proposed for domestic programs.

If Trump actually wants to significantly help the U.S. economy and the struggling American middle class, then he needs to get substantial cuts to both regulations and overall spending.  We need a sharp overall decrease in the federal budget which would put resources back in the hands of consumers and investors.

Savings and capital investment are what ultimately lead to higher living standards.  For this, we need a massive reduction in government.