The question of whether your house is an investment will likely be a debate until the end of time in the financial community.  Some see it as a great way to build wealth, while others see it as an expense.

There are good arguments both for and against buying a house.  The main point is that you should only buy a house when you can afford to do so.  You should only buy a house if you have some backup reserves for all of the potential things that can go wrong with a house.  Despite getting homeowners insurance, there are a lot of big potential expenses that a policy likely won’t cover, such as a new roof or a new air conditioning unit.

There is no question that a house is a consumer good.  It just happens to be a consumer good that is a necessity.  A 2,500 square foot house with 5 bedrooms is not a necessity.  It may seem like a necessity for a large family with a lot of stuff (or even a smaller family with a lot of stuff), but there are many large families living throughout the world that have accommodations far smaller.

The shelter part is a necessity.  Assuming you don’t want to be homeless, it is a basic necessity.  Even homeless people have to seek some shelter, especially when it is cold.

Assuming you are at least middle class, living in the U.S., it is reasonable to expect a decent living environment with indoor plumbing, electricity, air conditioning, appliances, and some room to move around.  Even most of the lower class in the U.S. gets to have these basic things.

There is a point where getting a larger house becomes more of a luxury than a necessity.  This is highly subjective, but the point is important.  There is nothing wrong with a family buying a larger house than what is reasonably necessary.  We just shouldn’t delude ourselves that this is somehow an investment.  It is basically a consumption item.  But in our world of central banking and inflation, it is something that tends to go up in value – at least nominally – over the long run.

You can buy an investment house to make money, especially if you don’t live in it.  Otherwise, it is hard to call it an investment, unless you are renting out rooms while living in it yourself.  There is a difference between a wise financial move and an investment.

As far as rental real estate, this is essentially a business.  You could also buy a van and rent it out to people.  You could buy a powerful snow blower and rent it out to people when it snows.

If you buy a house for $100,000 (without a mortgage), and you can net $8,000 per year after expenses by renting it out, then your return is 8% per year.  This is a good return.  If the house appreciates in value, then this is bonus money.

If you buy a house to live in, it may or may not be profitable.  It is hard to calculate, even after the fact.  There are many expenses that go into owning a house that are hard to add up.  You would also have to consider the possible return on your money during this time if you hadn’t spent it all on a house.

I find that most people’s opinion on this subject reflects their actual experiences.  If someone bought a house in California 8 years ago and it has doubled in price, then they are thinking pretty highly of real estate.  If they are smart enough to sell and become renters (or buy in a much cheaper area), then they will probably always have a high opinion of real estate because it was so profitable.

If someone bought a house in a bubble area in 2006 and held on, they still might not be back to even 12 years later.  It would be hard to convince this person that buying a house is a good investment.

There are some lucky people who buy a house and have it appreciate significantly.  If they are smart, they cash out.  If they are dumb (unless they are truly wealthy), they sell the house and move to an even more expensive house in the same bubble area.

Aside from the possibility of getting lucky with major appreciation, the main benefit of buying a house is that it acts as something of a forced savings plan.  Every month when you pay the mortgage, a certain portion of that is going towards the principal, even if it is relatively small at first.  If you stay in the house for a long time, you can eventually find yourself owning the house (as long as you keep paying your property taxes).  This has been a way for middle class families to build some wealth.

Of course, there is also a benefit of owning a house in that you can control what you do with it, as long as you are not violating any association rules or local ordinances.  You also can’t be kicked out by a landlord, as long as you keep paying your mortgage and property taxes.

When I am asked whether someone should buy a house, I list a few conditions that should be met before someone considers buying.

1. You should be planning to live in the house for at least 7 years, if not longer.
2. You should have some extra money set aside for repairs and maintenance.  You could call these “unexpected expenses”, except any homeowner will know that they aren’t that unexpected.  You are guaranteed to have some major repairs.
3. Check the rental rates in your area versus the monthly cost of owning a similar sized house.  If the expenses to own a house (which include mortgage, insurance, property taxes, association fees, maintenance, and repairs) are significantly higher than it would cost you to rent, then you should probably just rent.

If, based on the three things listed above, you are still in the running for buying a house, then it really comes down to your preference.  Even here, I would not recommend getting in over your head with too much house.  You should never buy as much house as what you qualify for with a loan.  You don’t want to be house rich and poor in every other way.

The one caveat to all of this is for someone with significant wealth.  If you are worth $50 million, go ahead and buy the $4 million mansion in California.  I’d rather take advice from you on how you accumulated so much money.

Whether a house turns out to be a good investment or not really depends on the real estate market.  It depends on where you buy and when you buy.  Part of this is pure luck, as you cannot predict the future.

However, you can look at prices compared to rent and see what is reasonable.  You also control your own finances and whether you can still afford to stay in a house even if there is a major downturn in the economy.  If you plan to stay in the house for a long time, then this virtually eliminates the need to worry about short-term fluctuations in the housing market.

If you are buying a house to live in, buy it as a consumer good.  You don’t pay extra for leather seats in a new car because you hope to get a good return on your money.  You buy the leather seats because you want them and you think it is worth the cost.  You should look at a house in the same way.

The U.S. national debt just hit $21 trillion.  It received a few headlines.  Surprisingly, it seemed to receive almost as many headlines as it did when it surpassed the $20 trillion mark, which was an even more round number.

I don’t remember any headlines when the national debt surpassed $19 trillion, but that was still when Obama was president.  The anti-Trump establishment media is more than happy to point out the rising national debt under Trump and the Republican Congress, as if the recent cut in corporate tax rates is somehow to blame.  Of course, I am glad when any media outlet points out the astronomical debt, but I wish they would do it for other reasons than just trying to blame Trump.

To be sure, the national debt is bipartisan, and it has been for a long time.  The national debt first surpassed the $1 trillion mark under Reagan.  And despite Reagan’s reputation as a fiscal conservative, the deficits under his watch really were unprecedented for that time.  And tax cuts under Reagan cannot be blamed for the ballooning national debt.  There were also tax hikes under Reagan.  And more importantly, federal tax collections ended up rising significantly after the multiple recessions of the early 1980s.  It’s just that federal spending went up at a greater pace than did tax collections.

Over the last 35 years, the Clinton years of were the least harmful in terms of deficits.  Whether you want to credit this to Bill Clinton or the Republican Congress, that is not the point here.  It was during a relative boom time, and some of that was an artificial boom due to a relatively loose monetary policy from the Greenspan Fed.  When tax collections are booming (especially from the tech stock bubble), it makes it easier to reduce the deficits.

But even under Clinton, the national debt went up significantly.  Even when the budget was supposedly balanced, they were borrowing money from the Social Security “trust” fund in order to cover the difference.  Therefore, although things were relatively better during the late 1990s, there were many factors that were in play, and the national debt was still going up, even if more slowly.  If you look at the numbers by year at this site, the national debt went up every year under Clinton.

Now we are at a point where almost nobody cares.  The American people will say they care if polled, but they don’t really care.  It is like somebody who says they want to be a millionaire, but who sits on the couch all day watching television.  He may want to become a millionaire, but he is not willing to prioritize that in his life.  The American people might like to see a reduction in the national debt, or at least a balanced budget, but they aren’t willing to give up their favorite federal programs.

This is why the issue is bipartisan.  There is no true opposition to the national debt, other than from libertarians.  And libertarians take the position (correctly) that the budget should only be balanced if it is because of spending reductions.  We don’t want a balanced budget from additional taxes.

According to this site, the national debt per citizen is $64,249.  The debt per taxpayer is over $173,500.  By the time you read this and click on the link, it will probably be higher.  I know the national debt will be higher.

Of course, $21 trillion is not the true national debt.  Part of this debt is money that the government owes to itself, which it subsequently owes to the welfare state.  For example, part of the national debt is money that is owed to the Social Security trust fund.

The problem here is that the Social Security trust fund, even if you count the IOUs, doesn’t have near enough money to satisfy its future obligations, if we define obligations as what has been promised by politicians.

The total unfunded liabilities, most of which is accounted for by Medicare and Social Security, exceed well over $100 trillion.  Some estimates have put them over $200 trillion.  This is a ridiculous number (not because it isn’t true) that is hard to comprehend.  Therefore, almost everyone just ignores it.

Think of a family that earns $70,000 per year.  They have credit card debt and student loan debt totaling $200,000.  They can barely stay above water just making the minimum payments.

To this family, would it make a difference if their total debt were $150,000 instead of $200,000?  Would it make a difference if it were $220,000?

Of course, we know there is a difference.  But the only difference to this family would be the amount of interest they owe each month.  They have little hope of actually paying off the debt unless they win the lottery.  They could buckle down, create a budget, and live very frugally for several years.  But that is painful, and it takes future orientation.  You would not only have to look beyond tomorrow, but even beyond the next couple of years.

It gets even worse when talking about debt from the U.S. government because that is nobody’s responsibility.  Everyone figures that it is everyone else’s problem.

At some point, there has to be a set of losers in this game.  Even an outright default would mean major losses for bondholders.  When it comes to Social Security and Medicare, default means less money flowing to the senior population.

There will be some form of default when it comes to Medicare and Social Security.  It is guaranteed.  It is not just a matter of politics, but a matter of math at this point.

This doesn’t mean that Social Security checks will stop arriving in the mail.  It will be a series of mini defaults.  The paychecks will be worth less due to a depreciating dollar.  This already happens, but I expect it to happen at a greater pace eventually.

The biggest part of the default will come in the form of raising the age that people are eligible to collect on their so-called benefits.  They will probably start by raising the age to 70.  It will likely eventually be raised to 75.  For someone under the age of 50, it is almost guaranteed that the age will be higher than what is currently listed.

The sooner this run up in debt stops, the better off most of us will be.  We aren’t just piling on debt for future generations.  We are hurting ourselves now.  If the government were forced to balance the budget by drastically cutting spending, then it would mean more resources being directed in accordance with consumer demand instead of being directed by politicians and bureaucrats.  Even if it were painful initially, our living standards would ultimately benefit.

The ballooning national debt is a representation of our government and central bank going out of control.  We all pay the price in the form of lower living standards, except the tiny few who are direct beneficiaries of the corrupt system.

The latest consumer price inflation numbers came out for February.  The year-over-year CPI now stands at 2.2%, while the year-over-year median CPI stands at 2.4%.

While consumer price inflation has picked up a little in recent months (with a significant 0.5% in January), overall consumer price increases have remained fairly steady.  Of course, if the dollar is depreciating at 2% per year, we shouldn’t just accept this, as it still makes us poorer than we otherwise would have been.  And the CPI numbers do not take into account the full damage done by previous monetary inflation in misallocating resources.

Still, relatively speaking in our modern-day central bank world, 2% consumer price inflation is low.  The Fed is right around its benchmark.  This enables the Fed to very gradually reduce its balance sheet and raise its target federal funds rate.  At the same time, the Fed doesn’t have to rush into it and risk spooking markets too much.

It is amazing how much of a free pass the Fed has gotten over the last decade.  It engaged in massive monetary inflation with QE1, QE2, and QE3.  It multiplied the adjusted monetary base by a factor of almost 5, yet we have not had the corresponding consumer price inflation (not counting health insurance).

No matter what the Fed has done, the CPI has stayed within a relatively narrow range.  And even interest rates have remained in a relatively tight (and low) range.

Federal Reserve officials have had the luxury of something like a Goldilocks economy.  While wage growth and GDP has certainly been slower than what most would prefer, at least they can point to a little wage growth and low unemployment rates.  And at least the GDP is in positive territory.  Despite the struggles of the American middle class, the statistics tell them that they are doing just fine.

Based on the government statistics though, it really is a Goldilocks economy.  It isn’t too hot, and it isn’t too cold.  Price inflation is low, but positive, which is what the Fed wants.

The problem for the Fed (which is no longer Janet Yellen’s problem) is that this can’t last forever.  This “not too hot, not too cold” scenario is going to end.  It has to end at some point.

The reason it has to end is because of the previous malinvestment.  The money creation from 2008 to 2014, coupled with artificially low interest rates, has misallocated resources.  When it is realized that resources are not being allocated in accordance with consumer demand, then there is going to be a correction.

The Fed can allow the correction to happen (the best choice), but that would be painful, even though it is the better long-term solution.  The Fed can try to stop the correction, or at least ease the pain, by creating more money out of thin air.

I don’t believe in the Keynesian theory that there is a trade-off between inflation and economic growth, or a trade-off between inflation and employment.  The 1970s already proved the Keynesians wrong with high price inflation and recession.

Still, I think in the short run, there can be a trade-off.  If the Fed engages in massive monetary inflation, this can certainly help to mask some of the problems and give a short-term boom.

Right now, the Fed is walking on a balance beam.  If it leans too far to the right, it gets a recession.  If it leans too far to the left, it gets higher price inflation.  The Fed is always walking on this balance beam in a sense.  The problem is that, with the previous misallocations, the Fed is running out of beam to walk on.  It is narrowing and becoming more like a tightrope.  (Richard Maybury has used a similar analogy.)

The Fed will eventually be faced with a scenario of a correction or a return to money creation.  And even if it turns to money creation, it may not be enough, as it would likely only resort to this if we are already in a recession.

Some might ask why the Fed can’t just keep printing digital money forever to keep the boom going forever.  But even here, it can’t last forever.  We would eventually have runaway price inflation.  As Mises said, we would end up with a crack-up boom, which isn’t really a boom at all.  It is hyperinflation, which in itself is far worse than anything a regular recession or depression could give us.

To be sure, it would be possible to have an economy where we have low (or no) price inflation coupled with economic growth that goes on and on.  That would be true prosperity.  That can only take place in a free market economy.  If there is constant manipulation of the money supply and interest rates, there are going to be unsustainable bubbles that form.

It might be technically possible to get out of our current mess if we had a quick turn to the free market, coupled with some life-changing technological innovations.  The good forces of prosperity would have to overwhelm the correction or realignment of resources.  But given the extent of the previous monetary inflation, and given that the federal government is consuming over $4 trillion per year, this is not at all likely.

In conclusion, just because the Fed has been humming along with its Goldilocks economy, it doesn’t mean it will last forever.  Stock investors have already shown signs of fear, as volatility has picked up considerably.  Remember that the Fed’s balance beam will eventually run out, and the Fed will fall to one side or the other.  It will bring the rest of us down for a ride.

Imagine a young adult, say in their mid-20s, who just won the lottery.  After taxes, the amount in one lump sum comes to a million dollars in 2018.  What is the best strategy for that person?

First, we have all heard the stories of people who won the lottery only to lose all of the money a short time later.  Sometimes the outcome is even worse with drug addictions, ruined relationships, and even suicide.

This is one of the big problems with the lottery.  When the money isn’t really earned, it tends to not be respected.  The person may be entitled to the money because the person put down the money to buy the lottery ticket.  But since the winnings didn’t come from a combination of hard work, creativity, and pleasing customers, the money is not highly regarded.

One of the most popular posts I have ever written is on the HGTV show My Lottery Dream Home.  I shared how some of the lottery winners were taking a large chunk of their winnings to buy a lot more house than needed.  To be fair, I see many lottery winners who are quite conservative with their money but just want a little upgrade in their living conditions.

If you earn your money through hard work, diligent savings, calculated risks, and patience, then you are far more likely to take good care of that money.  You know how much work and effort it took to make the money, so you are not going to easily blow it all.

With that said, let’s go back to the example at hand.  The average lifespan for someone in a first-world country is approaching 80 years old.  For someone in their 20s who is in relatively good health, they could expect to have a decent chance of reaching 90.  That means at least 60 years left of living.

In other words, full-time retirement is probably not an option.  A million dollars isn’t what it used to be, especially if you are living in the United States with expensive health insurance.  Of course, one option to make your money last is to move to a place with a relatively low cost of living, even if that means finding a less developed country on the other side of the planet.

If you could invest the million dollars and earn a 4% return after inflation, then you are only looking at $40,000 per year before taxes.  While some people could make this work, it wouldn’t be a very comfortable lifestyle.  And that budget will quickly vanish if you introduce children into the equation.

You may think that 4% seems low for a return, but it may actually be too high.  If price inflation is running at 3% per year, then you would really need to earn 7% on your money.  And if you invest aggressively into stocks, then one market crash of 50% is going to wipe out any plans of retirement.

If I were counseling someone in their mid-20s who just won a million dollars, I would recommend being relatively conservative with it.  I would recommend that at least half of it go into something similar to a permanent portfolio.

If the real estate market were not too expensive at that time, then paying cash for a house would be a decent use of some of the money, as long as the house is basic enough.  In an average cost of living area in the U.S., I wouldn’t pay more than $200,000 for a home, unless you have children and need the space.

If you spent $200,000 on a house, then you wouldn’t have this money to invest.  But, you also wouldn’t have a mortgage payment.  You would just have the taxes, insurance, utilities, and other expenses that go with owning a home.  But you could ideally cut your monthly expenses by at least $1,000 per month by owning the house outright.

If you have a permanent portfolio and you buy a house outright, then I would slightly lessen the allocation towards bonds in the permanent portfolio.  Instead of 25% in long-term government bonds, I would cut it back to maybe 15 to 20 percent.  The reason is that paying for a house (and not taking a mortgage) is somewhat of a hedge against deflation in itself.  If you currently have a mortgage at 4% interest, then any extra money you pay towards the principal is essentially locking in that 4% rate.  As you pay off the mortgage, you are shifting from an inflation hedge to a deflation hedge.

And that brings us to investment real estate.  For the person who wins a million dollars in early adulthood, I think investment real estate still provides a good opportunity for long-term investing, as long as you aren’t buying at the height of a bubble.  I know that the wisdom on the street is to take out a loan and let the tenants pay off the mortgage.  You can also write off the interest expense.  But for someone with so much money at a young age, I think it is wise to be conservative and not use the leverage.  You can buy a property for $150,000 and net $1,000 per month (just as an example).  This is likely a better and less risky return than what you will find in stocks.

Also, for investment real estate – and this goes for anyone – I would not recommend buying really expensive properties.  Generally speaking, they don’t make good rentals.  It is better to not put all of your eggs in one basket.  I would rather see someone buy three properties at $150,000 each than buy one property at $450,000.

And lastly, we need to address the whole idea of retirement.  Generally, I don’t think it is a good idea to retire early in life, if at all.  There is a difference between being financially free (the option to retire) and early retirement.

But not retiring early does not mean misery.  It doesn’t mean you have to go to your cubicle job five days a week.  You can be productive in many ways now, especially with the internet.

And that is one of the beauties of having a nice nest egg to start.  If you are in your mid-20s with a million dollars, you should use the opportunity to invest in yourself and learn new skills.  Of course, this could be said for someone without a million dollars too, but someone who doesn’t have to go to a 9 to 5 job Monday through Friday has a real opportunity for personal growth.  Imagine how much you could learn about website building or internet marketing if you spent 40 hours per week studying it.

And for someone in this situation, it would be easy to do something where you have passion and can still make some extra side money to supplement your investment income.

Now, what would you do if you won a million dollars?

Take your answer, and do it anyway.  You probably don’t need a million dollars to do it.

Frederic Bastiat (1801 – 1850) was a French economist who wrote on economics and the law.  He preceded Henry Hazlitt by about a century in pointing out the seen versus unseen consequences of government intervention in the economy.

Among libertarians, Bastiat is perhaps most famous for his little book titled The Law.  It was published in 1850 near the end of his rather short life.

Bastiat mostly praises the United States during that time.  Speaking of the U.S., he wrote:

“There is no country in the world where the law is kept more within its proper domain: the protection of every person’s liberty and property.  As a consequence of this, there appears to be no country in the world where the social order rests on a firmer foundation.  But even in the United States, there are two issues – and only two – that have always endangered public peace.”

So while Bastiat was praiseful of the U.S., he understood that there were problems here as well.  Bastiat continued:

“What are these two issues?  They are slavery and tariffs.  These are the only two issues where, contrary to the general spirit of the republic of the United States, law has assumed the character of a plunderer.  Slavery is a violation, by law, of liberty.  The protective tariff is a violation, by law, of property.”

Bastiat was absolutely correct.  The U.S. of the first half of the 19th century was one of the freest places on earth, not only during that time, but in history.  But these two issues were completely anti-liberty in every sense.  Incidentally, they were also the two main issues that led to the so-called Civil War. (It wasn’t really a civil war because the southern states were just trying to secede, not take over power.  The Revolutionary War was also a war of secession and not really a civil war.)

If only more people back then had listened to Bastiat.  This is a generalization, but the southern states needed to listen to him on the issue of slavery, and the northern states needed to listen to him on the issue of tariffs.

While chattel slavery is no longer with us in the United States, it is still a great stain on the history of this country, and that history still serves as something of a divide.

Meanwhile, on the issue of tariffs, apparently many people still haven’t learned any lessons.

Donald Trump needs to read Bastiat.  Actually, he just needs to read some basic economics.  To impose protective tariffs is damaging on many levels.  While a small minority of people may benefit in the short term in those specific industries, nearly everyone pays a price in the loss of liberty and the reduced living standards.

Most of the 1800s was a prosperous time in the United States.  It’s not that anyone today would switch places with someone back then, but it was a time of significant economic growth and progress.  There was no federal income tax (except briefly tried by Lincoln).  There were no payroll taxes.  There was no Federal Reserve (although there was still some government interference in banking).

Overall, not counting the slaves, people were relatively free.  But unfortunately, they were not free to trade with foreigners without having heavy taxes (tariffs) imposed.  If tariffs had been much lower or non-existent, then economic growth would have been even greater during this time period.

We, as a human race, are able to live relatively comfortable lifestyles because of the division of labor.  If we didn’t have the division of labor, we would all be in extreme poverty, if not dead.  No matter how independent you are, you rely on the division of labor.

If you have an island of 1,000 people that is cut off from the rest of the world, the people there are going to be poor.  They can certainly use the division of labor within their island, but they only have so many hands and brains to be productive and creative.

If you have an island of a million people, assuming they have some respect for property rights, they will be far better off than the island of 1,000 people.

In the U.S., we can still be somewhat prosperous if all economic activity had to stay within our borders.  There are about 325 million people.  Still, we are better off if we can voluntarily trade with the other 7 billion people on the planet.

Just as it wouldn’t make sense for Floridians to cut off trade with the people in Alabama, it doesn’t make sense for Americans to cut off trade with Canadians, Chinese, or anyone else.

Tariffs limit this ability to trade.  It subsidizes specific industries at the expense of all consumers.  Tariffs make us poorer than we otherwise would have been.

And tariffs still don’t make sense even if they are done in retaliation. If the Chinese want to impose tariffs on certain imports, then it is Chinese consumers being hurt.  There is no sense in American consumers also being hurt in the name of fairness.

We are so much better off because of global trade where people are able to specialize in the things in which they excel.  We should seek more trade, as each party in a voluntary trade deem themselves better off when making the trade. Otherwise, they wouldn’t make the trade.

Trump is only going to shoot us in the collective feet by imposing tariffs.  He needs to start thinking.  He needs to read some basic free market economics.

The terms communism and socialism are sometimes used interchangeably.  This is mostly appropriate, as they are similar systems.  Socialism is considered an economic system, while communism can be considered both an economic and political system.  The problem with this is that socialists have to use the political system in order to enforce their desired economic system.

Both communism and socialism are systems where the state owns the means of production.  The advocates of these systems will say that the public or working class would own the means of production, but this ultimately means that the state owns and controls the means of production.

Some will say that property ownership can still be allowed in a socialist system, but then this would negate the system of being fully socialist.  It would be a mixed economy.  Many people who call themselves socialists really are not full-blown socialists when it comes down to it.  They just want more government control than what currently exists.  If they believed in full-blown socialism, then they wouldn’t be able to own the clothes on their back or have any money.

Regardless of how you define the terms, communism is an extreme form of socialism.  Communism happens when socialism is brought to its logical conclusion.  If socialism isn’t fully followed, then elements of the market economy have to be let in.

This is why it is virtually inevitable that all true communist regimes resort to massive violence.  It is no coincidence that the most brutal tyrants in history existed in communist systems.  You can certainly have brutal tyrants existing in a system that is not communist, but they are less likely to get away with mass murder of their own people.

Stalin, Hitler, and Mao were some of the most brutal dictators of the 20th century, and really in history.  Hitler was considered a national socialist, and Stalin and Mao were considered communist.  While Germany was never completely socialist, it certainly headed in that direction under Hitler.  In China and the Soviet Union, these were about as communist as you can get.  But even here, they weren’t ever 100% communist.  There were always elements of the underground economy.  There had to be, or else nearly everyone would have starved to death.

Even if you had a populace that was completely cooperative, it would still be impossible to have a fully communist system without violence.  As Ludwig von Mises pointed out nearly 100 years ago, socialism cannot work because there is no rational price system to allocate scarce resources.  You will end up in extreme poverty.

Of course, any country with a substantial population will never be fully cooperative.  There may be a good portion of the population that implicitly consents to the state, but you will always have people who don’t go along.  You will especially have people who don’t go along when they are starving with little to lose.  Even some of the most obedient citizens will rebel if they are desperate enough.

But even if every citizen were obedient, then they would either die of mass starvation, or else the state would have to let some market elements breathe within the system.

The state rests on violence.  That is the definition of government in today’s world.  A government is defined as the only entity with a legal monopoly over the use of violence within certain boundaries (unless the government shares that monopoly with another government).

Socialism and communism take this use of violence to an extreme.  If the state owns and controls everything, then the people under that state have no say.  If they rebel in any way, they risk having violence used against them.

You may hear some people advocate democratic socialism, but this is essentially an impossibility when dealing with any substantial population.  If the state owns the means of production, then the people can’t really have a voice.  And what happens if the people vote in favor of freer markets?

You may hear reference to democratic socialism in places such as Norway or Sweden, but these aren’t socialist countries.  They are welfare states to a certain degree, but they are nothing close to actual socialism.  They have a system of English common law where property rights are upheld to a great degree, or at least up to the point that the welfare state allows.

In a system of full-blown socialism or communism, there has to be violence in order to maintain the system to any degree.  If violence is not employed, then it will no longer be a fully socialist/ communist system.  If voluntary exchanges are allowed, this entails some form of private ownership.  The communist regime can either choose to use the firing squad, or it can choose to allow market elements to leak in.  There really is no third way.

The closest thing to a communist regime today is North Korea.  But even there, there is some semblance of property rights and limited trade.  After that, there are varying degrees of socialism and free markets.  Every country has a mixed economy, but some are more socialist than others.

The reason that communism and socialism have directly led to the deaths of hundreds of millions of people in history is not a result of the systems being implemented the “wrong way”, as the socialists today would say (if they even admit to the mass murder).  These systems worked exactly as they were supposed to work.  In order to maintain a system of socialism and communism, you have to resort to massive violence.

I have been highly critical of Warren Buffett over the years.  He is obviously one of the best investors of all time (if not the best), but he is a disappointment when it comes to his politics.

It is for similar reasons that I have been critical of Rand Paul in the past, although Rand Paul has been much better since his failed presidential campaign.  Both Warren Buffett and Rand Paul are the sons of libertarian congressmen.

Ron Paul is certainly the most pro liberty congressman of the 20th and 21st centuries.  He might be the most pro liberty congressman ever, but it is hard to compare with some going back to the 1700s and 1800s.

Howard Buffett – the father of Warren – was probably the second most pro liberty congressman of the 20th century.  He was a non-interventionist, and he understood free market economics.  He was an advocate of the gold standard.

Ron Paul rubbed off more on his son than Howard Buffett did on his. Of course, I wish Rand were more like his father, but at least they are in the same ballpark.  Warren Buffett is very different from his father unfortunately.

Warren Buffett is a capitalist in the sense that he invests his capital and he strives to make a profit.  The problem is that he is not a believer in the free market.  He promotes big government way too much, and he has no excuse because he failed to learn from his father.

I don’t know if Warren Buffett promotes big government because he can use it to his own benefit up to a certain point.  Or maybe he really does believe the things that he says.  I suspect it is something of a combination of the two, as with so many quasi-socialists and promoters of big government.  Buffett probably instinctively knows that the government can work in his favor at certain times, and he is willing to turn a blind eye to the damages that it does to middle class America.

Buffett has been doing his seemingly ritualistic interview with Becky Quick on CNBC.  She is one of the few people who gets inside access to Buffett and can get him to open up about certain things in public.  It was surprising to hear Buffett actually praising the cut in corporate tax rates to a certain extent.

Buffett also recently put out his annual letter to the shareholders of Berkshire Hathaway.  In terms of advice, there is useful information. Buffett shows that he became extremely wealthy by being patient and not necessarily running with the herd.  He takes a rather conservative approach, as you can see by his comments warning about acquisitions.

The letter states: “Our aversion to leverage has dampened our returns over the years.  But Charlie and I sleep well.  Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.  We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us.  We also hold it today after a million or so ‘partners’ have joined us at Berkshire.”

I part ways with Buffett when he starts giving advice to the lay person about investing.  He says to buy and hold.  He says to buy a broad index fund.  He tends to take the opposing view of what his dad held in that Warren does not advocate gold, even when it comes to investing.

The problem is that Warren Buffett is not giving the same advice as what got him wealthy.  Although he comes across as a conservative investor, he focused his efforts into the things he knew.  He bought shares in companies that he thought were undervalued and had great potential.  Buffett didn’t get rich buying index funds.

The one thing I really like about Buffett as an investor is that he is good at staying away from the herd mentality.  He has famous quotes in this area.  He says to hold when everyone else is in a buying frenzy.  He buys when there is blood in the streets.  On this, it is good to listen to Warren Buffett.

If only he understood better, or acknowledged, that these bubbles and busts are related to central banking.  He may be 87 years old now, but he should go back and read some of the material that his father put out.  He could still learn something at his age.

In the wake of the mass murder that took place at a high school on February 14, there are loud calls by many for stricter gun controls by the federal government.  There are always a few who will say guns should be completely banned, but most are wise enough to know they will not achieve this in one step.

Of course, those who call for an outright ban are just calling for a ban for those without a government ID.  They are not proposing to ban guns for the police or military.

The biggest contradiction has to be coming from those who loudly supported Black Lives Matter and the kneeling of NFL players.  On the one hand, they are outraged at the abuse by the police.  On the other hand, they want only the police to own guns.  Can somebody please explain this to me?

There is little chance that there will be any significant changes legislatively.  Ironically, the chances are greater now with Trump in office than with Obama in office.  Whenever there was a shooting that received national attention when Obama was in office, the calls for more gun control would start.  But the opposition would quickly respond in large numbers.  Republicans did not trust Obama and would immediately say that Obama wants to ban guns.  Obama was the best salesman for guns and bullets in history.

Now that Trump is in office, there is a greater threat that something could be done (and not on the positive side).  Trump has little in the way of principles, so he would have no trouble signing additional gun control legislation under political pressure.  The big question is if the Republicans (and a few Democrats) in Congress will get enough pressure to resist.

It is amazing how hysterical people can get when such an event occurs, although I have no doubt that the narrative is pushed by the establishment media.

First, let’s put it into perspective.  Every day, about five times as many people die in the U.S. in a car accident as died in that one shooting incident that received national attention.  It is tragic for those involved, but it is a minuscule percentage of the population of a country that has over 325 million people.

The president could go on television and tell everyone to make sure they take extra Vitamin D3 pills in the winter and to cut down on processed foods.  If just 1% of the population were to follow his advice, it could save thousands of lives.

The politicians always like to solve the previous problem.  Therefore, in this case, they want to raise the minimum age to 21 when you can buy a gun.  What happens the next time there is a shooting with a 22 year old?  Will they have to raise the age again?

Of course, the murderer ignored all of the laws anyway, and that is mainly the point.  He didn’t obey the laws against murder.  He did not obey the government gun free zone at the government school.

I don’t understand the family members and students who survived the shooting who took trips to Tallahassee and Washington DC to make political statements (on many sides).  Maybe they are just angry and want something done, but you would think they would be too busy grieving to start a political crusade.  It’s hard to judge not being in that situation, but it just surprised me how quickly it all happened.

I have heard many gun control arguments through the years.  The most common now is to point to other countries that have strict gun control (or even almost total gun bans) that have less violence than the U.S.

It is easy to find articles or posts about any number of countries.  For example, I hear that guns are essentially non-existent in Japan, and the Japanese have a very low murder rate.

I would just like to point out that first-generation Japanese people living in America do not kill people either.  It’s not as if a Japanese guy gets to the U.S. and finds he has easy access to guns so he buys one and decides to kill people.

There are countries with strict gun control with low violence. There are countries with strict gun control with high violence.  There are countries with relatively easy access to guns with low violence.  There are countries with relatively easy access to guns with high violence.

The same can be said with different states and cities within the United States.

In other words, gun laws don’t matter that much at all. If anything, I think stricter gun control in an already relatively violent place just makes things worse because it disarms the good people.

But the main feature of violence has nothing to do with access to guns.  The main feature is culture and ethics.

The school shooter came from a broken family.  The school shooter was probably on psychiatric drugs.  The school shooter had been in JROTC and surrounded by our culture that promotes militarism and violence.

Most people from a broken family do not become killers.  Most people on drugs don’t become killers.  Most people in the military don’t become killers unless they are doing it overseas.

But let’s face the fact that this has nothing to do with a gun problem.  It is a culture problem.  We live in a society that promotes violence.

Japan has its own set of issues, but the use of violence (outside of the state) is not one of them.  Kids are brought up in a stable but strict household.  They are taught to respect authority (which isn’t always good either).

Meanwhile, the government failed in every way with this mass shooting.  The government’s laws didn’t work.  The government school didn’t keep the students safe.  The on-duty school officer did nothing as shots rang out.  And the FBI completely failed.

The FBI is busy investigating (making up) a story about Russia influencing U.S. elections.  The FBI is busy investigating college basketball programs for paying players.  Meanwhile, the FBI gets reports that this guy is going to be a school shooter, and they do nothing about it.  If that’s the case, what is the point of mass surveillance?  They can’t even make use of information that is out in the open.  (I know the purpose of mass surveillance is people control and not safety.)

Yet, for some reason, many people want to turn to the government to solve the problem of shootings.  This in itself is part of the problem because government is the entity with a legal monopoly on the use of violence.  Yet, people want more government, and that too is part of the culture of violence.

Let’s face it; gun control is really people control.  It is no coincidence that all of the worst tyrants in history favored some form of gun (or weapon) control.  Stalin and Hitler believed in gun control.  The Jews in 1930s Germany were largely disarmed.

The gun control people will say, “That can never happen here.”  And you know what?  They are probably right because a large segment of the American population will never disarm themselves.

With jitters on Wall Street having picked up in the last month, now is a good time to consider what the next recession/ economic downturn will look like.

There are certainly a lot of theories out there from the bears, and we should consider the possibility of each of them, at least if they are reasonable.  When Harry Browne was advocating his permanent portfolio approach, he would make a point that one should not consider whether a scenario will happen, but whether one is properly prepared if such a scenario were to happen.

We can mostly discount the theories that have almost no chance of taking place.  And there are some theories that, if they did come true, there would be no point in preparing for anyway.  If someone is predicting all-out nuclear war that will blow up the world, what is the point of worrying about it?

There are a few out there who predict that hyperinflation of the U.S. dollar is right around the corner.  I won’t say this is impossible, but it is highly unlikely in the near future.  And in the unlikely event that it did come true, I’m not sure that I could prepare for a complete breakdown in the division of labor as we see in Venezuela.  The people who predict hyperinflation are probably not taking their own predictions seriously.  Otherwise, they wouldn’t be blogging about it.  They would be moving out of the country or finding a rural retreat stocked with canned foods that is out of sight.

There are predictions that I see that I don’t agree with in the sense that I don’t think they are likely.  But at the same time, I don’t think they are highly improbable either.

For example, there are many libertarians who are predicting a spike in interest rates in the near future.  I do not see this as likely.  Or if it does occur, I think it will be short-lived.  Unless price inflation fears dramatically pick up, then I believe that investors will run to U.S. government debt for safety in an economic downturn, locking in longer-term rates, thus driving yields down.  While interest rates have gone up a bit recently, they are still relatively low.  I believe they will stay relatively low until we see a significant threat of substantial price inflation.

However, I could end up being wrong.  Therefore, I look at my own financial situation and see if such a scenario would be damaging to a great degree.  Since I have a fixed-rate mortgage, and my investments would stand up relatively well in a higher interest rate environment, I don’t have to worry excessively if such a scenario unfolds.

With all of that said, I would like to emphasize that the next recession won’t look like the last one, which was the financial crisis circa 2008.  There will likely be similarities, but history almost never repeats exactly.

If I had to guess, I don’t think the banks and financial institutions will be in as much trouble this time.  The banks were bailed out in 2008, and they continue to be bailed out to this day.  They are collecting 1.5% on their reserves, which is the Fed’s way of maintaining its federal funds rate target.  It is also the Fed’s way of secretly bailing out the banks.  The good news is that they should not need as much bailing out next time.

We also won’t have a housing bust to the same degree as a decade ago.  Housing will certainly take a hit in a recession.  It will obviously get hit harder in the real bubble areas, such as San Francisco.  But in most areas, housing prices are not where they were in 2006/ 2007, and that is with a significantly higher monetary base now.  Therefore, I don’t think the fall in real estate prices will be as bad, which means fewer defaults next time for the banks.  Of course, the defaults from car loans could end up being worse.

As far as stocks go, they could fall even further than what was seen in 2008/ 2009.  Stocks are likely a giant bubble, and we don’t even know if they have already peaked.  We could still see another run higher before the final collapse.

And as I’ve already said, I think interest rates will fall in the recession.  This means that U.S. government bonds are still not a completely ridiculous investment.

Gold is much harder to predict, but my best guess is that it will be similar to 2008/ 2009 where it takes a dive as the U.S. dollar strengthens.  But if QE4 comes, then all bets are off and gold will likely zoom higher.

We could end up seeing $2 trillion annual deficits.  This would have been unheard of 10 years ago.  But Congress may run a $1 trillion deficit next year, even if we don’t go into a recession.  I don’t know when or how this will all end, but it will end eventually.  That is what happens to things that can’t go on forever.

These are just my thoughts, but of course we can’t know how millions of people will act in the future, let alone a few hundred politicians and central bankers.  We can only guess what is likely in the big picture.

Instead of trying to predict exactly how things will play out, the most important thing you can do is to ask yourself whether you are prepared for any somewhat likely scenario.  If you are particularly worried about a particular scenario because you are vulnerable, then work to fix that vulnerability.  You can only control what you control.

When someone says, “I put my pants on one leg at a time”, it can mean different things to different people.  But someone who says that is usually someone out of the ordinary trying to show some humility and that they are ordinary in many ways.  It would be common for a celebrity or rich person to make such a statement.

It is obviously true that most people do put their pants on one leg at a time, unless they like to sit down and shove both legs in at the same time.  Perhaps a better quote is, “Almost everyone puts their pants on by themselves.”  This may not apply for little kids or really old people.  It might not apply to a few people who have a disability or have a temporary injury.  But for the most part, adults put on their own pants without any help, including those with servants.

My guess is that Bill Gates and Jeff Bezos put on their own pants.  They probably do a lot of other things on their own.

I think it is important to acknowledge that no matter how rich someone is, or how glamorous their life seems to be, they still have to do many things that almost everyone else does.  They also have days where they don’t feel well.  They may have some days where they are just in a bad mood.  Despite what you might read from your friends’ posts on Facebook, everyone has their struggles in some way.  It’s just that some are worse than others.

I think this is important when looking at money and wealth.  There are a lot of people who think their problems would go away if they won the lottery or somehow made a lot of money.  Some of their problems and stresses probably would go away, but hopefully they wouldn’t be replaced by a whole new set of stresses.  Sometimes people need something of a routine and something that provides some fulfillment or sense of purpose in life.  If someone strikes it rich, they risk losing that fulfillment unless they are wise.

When thinking about money, realize that there is not that much difference between a multi-millionaire and a billionaire.  Most people can’t spend a billion dollars, even in a lifetime, unless they are buying a sports team or something similar.  And if you really want your own yacht and private airplane, the multi-millionaire can probably just rent or lease one for the time period that he wants it.

There have been studies that a higher income does not provide that much more happiness when you reach a certain level.  Some say it is rather low, say, around $75,000 per year.  But in America today, that kind of income does not get you that far, especially for a family.  If you know how to handle money well, then I would think a family earning twice that amount of money would find a lot less stress, at least in terms of paying the bills.  It wouldn’t change a lot of things though.  You aren’t hiring a chauffeur to drive your kids to their local activities.

You will always have certain stresses in life.  In terms of money, I think the key is to get to a point of being comfortable, while still saving money.  I know some rich people and entrepreneurs will say that being comfortable is bad because it makes you complacent.  There is some truth to this, but complacency isn’t that bad if you don’t have money stresses and you are living a content life.

Of course, I think it should always be a goal, even if longer term, to find financial freedom.  This does not necessarily mean being a millionaire if your living expenses are low enough.  It means being able to quit your job if you become miserable, without being really stressed out about money.  It doesn’t have to mean that you can quit and never work again, but it does mean that you should be able to quit for at least a few years without working.

Let’s take three families for example.  Let’s say there are two children in each example.  Family A earns $50,000 per year and barely scrapes by.  Family B earns $125,000 per year and is able to live a comfortable middle class lifestyle while saving 10% each year and taking one nice vacation each year.  Family C earns $1 million per year and lives in a really nice house in a country club and can take lavish vacations.

I would say there is probably a bigger difference between Family A and Family B than there is between Family B and Family C.  Family A is barely grinding through life and is constantly stressed out about paying the bills.  Their biggest treat in life is being able to eat out once a week at the local all-you-can-eat buffet.

There is obviously a far greater disparity in numbers between Family B and Family C, but they aren’t that much different.  Family C probably drives luxury cars, and everything in life is just a little more luxurious.  They fly first class when they go on a trip.  But the day-to-day activities are not that different.  And while Family B has to be a little cautious about where the money goes, they are still comfortable as long as the income keeps coming in.

The point is, most middle class people shouldn’t look at the super rich.  They can strive for that if they want to, but they should first seek just to make their lives easier.  This means not having to worry about money to the point that it causes anxiety.

Also, it isn’t all about income.  It is about spending and savings too.  Family A may find that they can still live on $50,000 per year and not be miserable if they only had a year’s worth of salary in the bank.  Then the little emergencies and repairs in life are not that big of a deal.

You can strive to be Family B with some money in the bank.  This will not eliminate all of the stresses in life, but it should eliminate most of the money stresses.  Of course, there are other factors to weigh, such as actually liking your job.  There is also the consideration of whether one parent should stay home with the kids and not work a salaried job.

Family C may not be that much happier than Family B, if at all.  There is one thing for sure though.  The people in Family C are still putting on their pants by themselves, whether if it is one leg at a time or not.