Tom Woods – on his wonderful podcast – recently had Joe Salerno and Jonathan Newman on to discuss the Austrian Business Cycle Theory (ABCT).

Specifically, the three of them were responding to an article by Steve Horwitz that they saw as a criticism against the Austrian Business Cycle Theory.  I am not certain if the article was supposed to be an outright criticism of the ABCT, or if it was just to show its limitations.  There were parts of Horwitz’s article I agreed with, and parts I didn’t agree with.

A little before the halfway mark of the podcast, they discussed one particular claim from the article.  In discussing the Great Depression, Horwitz writes, “The theory’s adherents have argued that the recession that began in 1929 was the result of an unsustainable boom initiated by an excess supply of money at some point in the 1920s.”

On the podcast, Salerno was quick to disagree with this point.  He said that the excess supply of money doesn’t cause the business cycle.  He said that it is how the increase in the money supply is injected through the financial system, and thus lowering interest rates, that causes the business cycle.

Specifically, Salerno stated that an increase in the money supply that was used directly for war spending would not cause a business cycle.  He said, “That only causes a simple inflation.  It causes prices to rise.  It does not cause a business cycle.”

I believe Salerno gets this wrong.  An increase in the money supply to finance war spending (or anything else) is not just a simple rise in prices.  It is a misallocation of capital.  It is also a redistribution of wealth.

A correction – which is the bust phase – occurs when those misallocated resources get realigned.  So if you create new money to finance the military industrial complex and then that flow of new money comes to an end, there is going to be something of a bust with the war industry.  The makers of weapons will see higher unemployment.  Stock prices will probably fall.

The biggest bust of the recession in 2008 was housing.  And yes, this was largely due to the artificially low interest rates, also coupled with easy money.  But we can’t completely discount the government’s incentives of encouraging banks to lend and supporting the mortgage market through its government enterprises (Fannie Mae and Freddie Mac).

You could have an increase in the money supply that goes directly to the government, which then uses the money to help people make down payments on houses.  This would likely result in more demand for purchases of houses and a bidding up of prices.  It would likely cause a bubble in housing.  You don’t have to have an artificially low interest rate for the government to cause a bubble.  It certainly helps, and it certainly can exaggerate the situation, but it isn’t an absolute necessity.

Maybe Salerno would argue that an increase in the money supply would just cause misallocations in certain industries, limited to those areas where the government spends its money.  In his eyes, maybe this doesn’t constitute the business cycle because it is not widespread.

But in any bust phase, there are always certain industries that get hit harder than others.  Some industries are virtually untouched.  The housing bust was devastating because it is such a major asset and also because it impacted the banking system from all of the bad loans.

I know many Austrian school economists will disagree with me on this point, but I believe that an increase in the money supply can cause artificial booms and busts.

Usually the easy money and low interest rates go hand in hand.  So in today’s system, this internal debate may be somewhat moot.  But I hope that Salerno at least recognizes the fact that an increasing money supply misallocates resources.  And unless those resources continue to be misallocated forever, there is going to be some kind of bust.

That is one of the most devastating effects of an increasing money supply.  It distorts savings and investment and it misallocates resources.  This misallocation makes everyone poorer, except for the few beneficiaries who see the money first.

Donald Trump recently gave a speech on foreign policy.  It has received a little bit of praise and a lot of criticism.  But the criticism has been coming from both ends.

The entire establishment – which is made up entirely of war hawks – has been extremely critical of Trump.  They absolutely hate him.  It is for many reasons.  He can’t be bought, and he doesn’t go along with the rigged game.  But most of all, he has dared to question the U.S. empire overseas.

Knowing that the establishment hates him this much, it should tell us that he can’t be all that bad.  At worst, he would be as bad as the establishment.

There is much debate within the libertarian community on Trump.  I have already written that I am rooting Trump on, but not endorsing him.  If he does become president, I will probably oppose most of what he does, yet remain hopeful that some sanity returns in the realm of foreign policy.

Justin Raimondo wrote about Trump’s foreign policy speech.  While there were certainly parts he didn’t care for, he was optimistic overall.

Scott Horton, whom I also respect, was interviewed by Tom Woods on Woods’ podcast.  Scott Horton absolutely blasted Trump.

Also on the anti-Trump side is Ron Paul.  You can just tell that he can’t stand Trump.  I haven’t disagreed with Ron Paul much in terms of his criticisms of Trump.  It is just that he hasn’t pointed out the positive things that Trump has said, especially when it comes to getting along with Russia and criticizing the wars.

Ron Paul may just dislike Trump because Trump squashed his son, Rand Paul, like a little bug.  Rand Paul was supposed to be the anti-establishment candidate, but he blew it.  Trump criticized the Iraq War while Rand was too busy trying to appease both sides of the fence.

Even if Rand Paul weren’t a factor, I can still see where Ron Paul would dislike Trump.  Trump has an alpha male personality.  He talks tough and he isn’t afraid to get down in the mud and throw punches.  Ron Paul is far more conservative (personality wise).  He probably doesn’t care too much for Trump’s brashness.

I don’t think we have to take a hard stand one way or the other in terms of Trump’s views on foreign policy.  He gets some things right.  He gets some things wrong.  He is unclear on some things.  He is inconsistent on many things.

The thing is, I will take Trump’s inconsistency on foreign policy.  It is better than the consistency of Ted Cruz and Hillary Clinton, who both have a proven track record of supporting war and intervention. It is their default position.  They are absolutely horrible people.  At least with Trump, there is some hope for sanity.

Trump may be exactly what this country needs to get back to a sane and non-interventionist foreign policy.  Ron Paul was consistent and principled, but he was criticized for coming across too weak.  Trump talks a tough game, while still presenting a less interventionist policy.

This is in no way a criticism of Ron Paul.  It is a criticism of the American people for not following his lead.  They couldn’t just accept a new policy that is more rational.  They need things wrapped up with a bow on them.  Trump maintains that we are tough and strong, but at the same time manages to criticize the war making.

On the other hand, I wouldn’t be completely surprised if Trump won the presidency and then ended up just as bad as the most recent presidents.  It will depend a lot on his pick for running mate and who he surrounds himself with.

Most politicians running for office end up being worse than how they campaigned.  Bush ran on bringing a more humble foreign policy in 2000.  Obama ran as the peace candidate in 2008.  Once in office, the worst usually comes out in people.

This was part of Scott Horton’s point.  He thinks Trump will not do all of the good things he says, but he will follow through on all of the bad things he says.

When Rand Paul was running for Senate 6 years ago, I was told by some libertarians that he just had to say certain things to get elected.  But once he was elected, he would be a libertarian.

I then heard the same thing in 2015 when he was running for president.  He just had to say certain things to be electable.  Of course, that didn’t work out too well.  But even if Rand Paul had been elected president, his foreign policy would have been terrible.  Almost nobody is more liberty-oriented once they get into office.

So we really don’t know what a President Trump would bring.  He could be terrible.  But it is almost guaranteed that he would be no more terrible than Clinton or Cruz.  At least with Trump, there is some hope for peace.

There is this widespread myth that deflation – particularly price deflation – is bad for the economy.  It is a result of bad economics and a misunderstanding of history.

In the 19th century, there was price deflation in the United States.  Generally speaking, there was a gradual decline in prices.  There were periods where this didn’t hold true, such as the Civil War.  But this exception just helps make the case, because war is marked by inflation and a reduction in living standards, especially when the war is on your own soil.

Throughout most of the 1800s, it was generally a time of peace.  There was something of a gold and silver standard, although admittedly not pure.  It was not a purely free market in terms of money, but it was a lot closer than what we have now.

As technology improved and capital investment and savings built up, production of goods and services increased at a substantial pace.  It was really probably the greatest increase in growth in recorded history.  Since the money supply was generally stable, at least compared to now, people’s purchasing power increased.  When you have the same amount of money chasing an increasing supply of goods and services, then the prices of those goods and services fall.

The one event that causes a lot of confusion is the Great Depression.  It was the worst economy in the history of the country.  This is in relative terms.  I’m sure someone living in 1833 would have gladly traded places with someone living 1933.

That is similar to today’s story.  Our economy is bad in relative terms as compared to the 1950s, but I don’t think a lot of people would trade in their smartphones, microwave ovens, and high-speed computers for an era of the 1950s.

The Great Depression is linked with deflation.  While the central bank was not deflating the money supply, there was a widespread failure of banks.  This reversed the fractional reserve lending process.  This is the equivalent of deflating the money supply available in the economy.

Of course, it was the monetary inflation of the 1920s that was partially responsible for setting up this problem in the first place.  And again, the banking system was far from being a free system, even back then.

The problem with linking depression and deflation is that it is confusing cause and effect.  When it rains, you get wet sidewalks.  But you don’t make it stop raining by drying the sidewalks.

You don’t stop a depression by ending the deflation.

A price deflationary scenario is a necessary correction process of the previously misallocated resources.  In today’s world of the FDIC, this is especially true.  We know we are not experiencing price deflation or a lack of price inflation because of bank failures.  Most depositors are made whole, and the biggest of the banks are not allowed to fail.

A lack of price inflation today can be the result of a lack of bank lending, and to some extent this is the case.  Since 2008, much of the increase in the money supply went into excess reserves with the banks.  This new money has not multiplied through the system.  But given some semblance of a free market, there is generally a reason why banks are not lending.  It is because it is too risky or because people don’t want to borrow.

Price deflation, or a lack of price inflation, can also be the result of an increased demand for money.  I believe this is the case now in the U.S., as well as places such as Japan and Western Europe.

When there is fear in the economy, people want to save some money for a rainy day.  If they fear a job loss, or even a reduction in income, it makes sense to take on less debt and put away some money for savings.  This has a deflationary effect.  It is a reduction of velocity.  Money is changing hands less frequently, which means prices are not bid up.

But this increase in money demand is necessary.  It is an attempt to correct for past errors.  It is an attempt by market forces to reallocate resources in accordance with consumer demand.  It is generally the prior monetary inflation that caused these misallocations in the first place.

There is not general price deflation in the U.S. right now.  Anyone who pays for health insurance and shops for groceries probably knows this.  There may be some mild price deflation in some sectors, such as the computer industry.  The price deflation would likely be greater if not for the Fed’s massive monetary inflation from 2008 to 2014.

The Fed says it wants 2% price inflation, but there is nothing magical about this number.  It just means a decrease in purchasing power.  Wages will eventually adjust, but they tend to lag behind.  You will already be paying higher prices at the store before you see a wage increase, at least in most cases.  This may not be true if you are one of the lucky few who is one of the first receivers of the new money.

The U.S. economy – while seemingly better than Japan and Western Europe – needs a major correction.  This means a widespread adjustment in prices.  If the Fed were to allow it to happen, which it should, it would likely mean lower prices for most things.

While a major correction would be painful for the American people, it will be even more painful in the future if the misallocations are allowed to continue.  While a major correction would be painful in terms of short-term unemployment, it would also provide a huge relief in lowering prices, especially for those things that are considered basic needs.

If the Fed and the government did not significantly interfere, then the pain should be short term.  Once everything adjusted, it would lay the foundation for an actual recovery based on savings and investment, and not some artificial recovery based on government spending and monetary inflation.

This is what our economy needs.  Price deflation may be associated with a bad economy, but the deflation is actually part of the medicine.  This is what we need to get back on a path of sustainable growth.  The central bank and the government need to allow it to happen without trying to produce positive price inflation.

If deflation is bad, it is only because of the prior inflation from the central bank.  But the price deflation is only trying to correct the previous errors.  Don’t blame the wet sidewalk for the rain pouring down.

For gold (and silver) investors, it has been a tough few years.  The metals have been in a bear market since around 2011.  This was after a historic run up.

We have to remember that silver topped out close to $50 per ounce and gold near $1,900 per ounce.  But around the turn of the century, gold was around $300, and silver was around $5.

Silver briefly went parabolic in 2011, so a pullback was inevitable at the time.  We just didn’t know how long it would last.

I don’t know what makes a bear market.  Maybe the last 5 years have been a small bear market within a larger bull market.  Still, 5 years is a lot of time, and investors have gotten hammered, especially if they bought anywhere near the top.

Overall, gold has still fared reasonably well.  That is why it is my top choice for holding a precious metal.  It is more stable than silver.  Silver is far more volatile.  It makes owning silver fun in a bull market, but quite devastating in a bear market.

Nothing has compared to owning mining stocks though.  They have been beat down so hard over the last several years, one could easily be down 80% or more.

They say that when there is blood in the streets, that is the time to buy.  Well, mining stocks have been a disaster over the last several years, so perhaps it was time to buy.

With gold and silver prices inching up in 2016, mining stocks have done well.  If the rising metal prices continue, we should expect continuing price increases in the mining sector.

Just as silver is more volatile than gold, mining stocks are more volatile than gold as well.  Mining stocks are usually more volatile than silver.

I recommend a permanent portfolio that includes gold holdings.  This does not include gold stocks.  Gold and other mining stocks should be left for your speculative portfolio.

I don’t know if there will be another major pullback in mining stocks. If we hit a recession, it could happen.  Ultimately, I am bullish on mining stocks because even if we hit a recession, the Fed won’t be far behind with another round of quantitative easing.

My strategy right now is to own a small percentage in mining stocks. If the Fed hints at more monetary inflation, maybe I will go higher.  Although I say I favor a “small percentage”, it should still be significant enough that it is worth it to you.

Just for example, if your financial net worth is $100,000, I don’t see much point in putting just $1,000 in mining stocks.  First, you will probably need a few percentage points in gains just to offset your trading fees.  And even if your stock or fund triples in price – which is an incredible success as an investor – it is hard to get excited about a $2,000 gain.

So for speculation, I am comfortable recommending 5% towards this speculation, as long as you are comfortable risking this amount.

You don’t have to buy individual stocks.  There are mutual funds and ETFs available.  I don’t see a problem with GDX, GDXJ, or TGLDX.

GDXJ is made up of junior miners, so they are even riskier, but they also offer a bigger potential reward if just a few of the stocks in the fund were to break out.

Again, don’t be surprised if a recession puts a damper on the mining stocks.  But even here, I am encouraged that gold prices have held up, or even gone up, in the face of a falling stock market.  We saw this take place in January.

If you want some risk, dip your toe in the mining sector.  I will buy more when I think the time is right.

As I write this, it looks as though Donald Trump and Hillary Clinton will sweep a bunch of states.  This essentially locks up the nomination for Clinton, barring an FBI indictment.  Even then, it may not stop her.

On the other hand, Trump has earned the venom of the establishment, so his fate is yet to be determined.  If he ends up with a majority of delegates heading into the convention, it is going to be tough for the Republican establishment to stop him.  If they do try to deny him the nomination, we will get to see the reactions of tens of millions of angry people.  Even some people who don’t fully support him will be mad.

If Trump does have a majority heading into the convention, then I think the Republican establishment will give up, at least on denying him the nomination.  They will put all of their hope behind Hillary.  Some will outright endorse her, and others will work behind the scenes in continuing to try to sabotage the Trump campaign.

The big question is what will happen if Trump falls just short of a majority of delegates.  I think the establishment will definitely try to deny him the nomination.  I don’t know if it will be Cruz and Kasich teaming up, or if some other outside person will come into play.

For libertarians, they are obviously all bad, but some are perhaps worse than others.  Trump is the only one who holds out any hope for some real change.  Of course, change can be bad too.

The best a libertarian can hope for is that Trump is elected and he actually starts withdrawing troops from around the world.  It would be the best deficit reduction plan there is.  It would obviously be a big step towards more peace in the world as well.

I recently listened to an interview of Lew Rockwell by Alex Jones.  They were talking about Trump, and Alex Jones said that Trump has become familiar with the issues over the years and that he is essentially a libertarian.  This I don’t believe.

Maybe Trump is just saying some things in order to be popular and to get votes.  But it would be very difficult for any libertarian, or even a libertarian-leaning person, to look at a crowd or into a camera and talk about tariffs on China and raising taxes on the rich.

I think Trump is a lot like Pat Buchanan in his philosophy.  He is level-headed, but not all that good on free trade and some other economic issues.  Still, I will take Trump’s honesty over the sneakiness of Ted Cruz and the corruption of Hillary Clinton.

I wonder though, would a contested GOP convention be good for the cause of liberty?

There are arguments to be made either way.  I just laid out some good possibilities of a Trump presidency, but of course there are no guarantees.

Maybe it would be a benefit to see the nomination stolen away from Trump.  It would probably hand the election over to Hillary, but at least there would remain a Republican-controlled Congress in all likelihood.

If Trump has the nomination snatched away, I think a lot more people are going to realize just how rigged the system is.  That is why so many people are supporting Trump to begin with.  I don’t think they love Trump.  Their support for Trump is a middle finger to the establishment and the whole rigged system.

If Trump loses the nomination at the hands of the Republican establishment, it will be a good opportunity for libertarians to attract some of the more level-headed Trump supporters.  Libertarians can point to the fact that we have been calling it a rigged game for a long time now.

There is hope.  It seems that more and more people are waking up to the fact that something is very wrong.  That is the first step for many towards becoming a libertarian.

I recently wrote an article for Wealth Daily on the threat of the Saudi government to dump U.S. assets if legislation is passed that would enable Saudi officials to be held liable for the 9/11 attacks.

This article focused on the fact that the House of Saud has far more to lose than does the U.S.  While I think the U.S. dollar will slowly lose its status as the world’s reserve currency, it isn’t the Saudis who will do it.

If any foreign governments can take down the dollar, it is the Chinese and Japanese, but it isn’t really in their perceived best interest to do so right now.  If anything, it will be the market participants in global trade slowly realizing that they don’t need to use the U.S. dollar as a middleman.

Now I want to get a little deeper into the political ramifications of possible Saudi funding of the 9/11 attackers.  This is already an interesting story in which the Saudis are being implicated.  It is an interesting story just because it is a story.

This has actually received coverage on 60 Minutes, as well as some cable news.  Of all people, Rudy Giuliani has been discussing it, and he isn’t dismissing it as a crazy conspiracy.

But if the Saudi government (or any other Saudis) really were involved in the 9/11 attacks, it all of a sudden calls Bush and Obama and others at high levels in the U.S. government into question.

The 28 pages from the 9/11 Commission Report have been hidden this whole time.  Obviously Bush (and subsequently Obama) knew what was in there.  If the 28 pages directly implicate the Saudi government in helping to fund or plan the 9/11 attacks, then why didn’t they allow this information to be released?  And even better, why have they continued to fund and support the Saudis?

The absolute best-case scenario is that they didn’t want to damage relations with the Saudis in order to maintain their support for the U.S. government’s ongoing interactions in the Middle East.  And that best-case scenario is pretty bad.

The main justification for starting wars and occupations in the Middle East is terrorism, and the 9/11 attacks in particular.  So why is the government going after Afghanistan and Iraq (and others) when the Saudis actually did help commit the atrocities of 9/11?

It would be bad enough that the families of the 9/11 victims don’t get justice by having the perpetrators who are still alive be held responsible.  It becomes even worse knowing that the White House knew the Saudis were partially responsible and then used this to start wars in other countries.

All of a sudden, the 9/11 conspiracy theorists aren’t looking so crazy after all.  If the White House knew that the Saudis helped fund (and possibly plan) 9/11, and then actually helped them evade being held liable, then it isn’t much of a step further to think that elements within the U.S. government knew the attacks were going to happen.  Then it isn’t much of a step further to think that elements within the U.S. government helped with the attacks.

We can’t conclude anything with certainty at this time, but you can see where this is going.  If those 28 missing pages from the report implicate the Saudi government (or others) in helping with the 9/11 attacks, it leads to a lot of other obvious questions.  I don’t know if these questions will eventually be asked outside of websites and social media.

If the U.S. government is ever implicated in the 9/11 attacks and it is widely believed by the American people, this should really change public opinion.  There will still be militarists who believe that we need to run the world, but a lot of people who are more ambiguous will turn against the government, at least on foreign policy.

Americans will still trust the government for their Medicare and their Social Security checks, but overseas wars and occupations will lose legitimacy quickly.

This gives us several reasons to hope that the full truth comes out in this matter.

The U.S. stock market has generally been a good investment since March 2009.  At that time, they had just been hammered by the recession and almost nobody wanted to touch stocks.

Since late 2008, the Federal Reserve quintupled the adjusted monetary base.  And while much of this new money went into bank reserves, thus not multiplying through fractional reserve lending, it is still monetary inflation nonetheless.

If this newly created money had been lent out to borrowers, then the monetary base never would have grown as much as it did because we would have already faced massive price inflation.

Still, despite the big buildup of excess reserves, the new money does represent spendable money in people’s (and business’) checking accounts.  And while consumer price inflation has stayed relatively tame in most areas, asset price inflation is a different story.

Real estate has been bid back up in some areas, but many areas are still far short from the peak of the last bubble.  The one big area where we have seen major asset price inflation is in stocks.

I am not a perma-bear when it comes to stocks, but stocks have not been a favorite of mine over the last decade or more.  I understand that there is money to be made in stocks, especially when the Fed is on a digital printing spree.

I also know that stocks are fragile because they have been bid up as a result of the monetary inflation.  When you live by the monetary inflation, you die by the tight money.

The Fed – despite low interest rates – has had a tight money policy since October 2014 when QE3 ended.  Tight money is not good for stocks when they have already boomed because of loose money.

January 2016 was a really tough one for stock investors.  It looked like it could be the beginning of something more devastating.  Since then, stocks have gone back up and recovered what was lost at the beginning of the calendar year.

While some will say that the pullback in January was a fake-out, how do we know that the current upswing is not a fake-out?

Unless the banks start getting rid of their excess reserves in a significant way, then we are in tight money mode.  And the Fed is not going to start adding to its balance sheet again until there is a major economic downturn, which would include a crash in stocks.

So regardless of whether the Fed raises its key interest rate again, we are in tight money mode, which will not be good for stocks.  But these things take some time to work out and filter through a massive economy.  There is a lag effect.

I do not recommend being heavy in stocks right now.  There may be more profits to come in the short term, but it is not worth the risk right now.

Owning stocks in the context of having a permanent portfolio (which I recommend) is fine.  It will only be 25%, and your other investments will likely offset any losses in a stock market crash.

Aside from the permanent portfolio, the only thing I like right now is gold stocks.  But even there, I am not too heavy.  If we hit a recession with a major downturn in stocks, gold mining stocks will likely take a hit too, unless gold goes completely the opposite way.

It was nice to see the gold price rise in January in the face of falling stocks.  I think there is so much uncertainty out there that gold could actually hold up decently well in a recession.

It is an interesting time to consider a short position in stocks for speculative purposes only.  It is a tough thing to do right now.  I don’t recommend a big short position, but if you are ever going to do it, a year and a half of tight money with near all-time highs in stocks is about as good of a time as any.

It took a lot of courage for the people who bought stocks in March 2009.  There is going to be a particular time that we look back at to say it would have been a good time to short stocks.  I don’t know if now is that time, but it seems plausible to me.

In some ways, Donald Trump is tearing apart the country.  It seems most people love him or hate him, but there is definitely a middle ground too.

Trump is even dividing many libertarians.  Some hate him.  Some are supporting him.  I am in the middle on this one.  I am not voting for Trump, but I am cheering him on in some aspects.

There is a group that formed called “Libertarians for Trump”.  They are supporting his bid for the Republican nomination because they consider him to be least bad.  Tom Woods had a debate about this subject on his podcast.

I understand the reasons for rooting for Trump.  He seems to be less interventionist in terms of foreign policy.  He does not bow down to political correctness.  He does not seem to take marching orders from the establishment.  Best of all, he is driving the establishment crazy.

Still, I think “Libertarians for Trump” is a bad idea as a formal group.  We already have to work hard enough in defending the libertarian name.  We don’t need people assuming that Trump somehow represents a form of libertarianism.  He is not even close.

On the other side, I don’t think libertarians should dismiss everything Trump says.  I listened to a video of Ron Paul the other day (that’s right, I listened to a video).  He was talking about the 2016 presidential election.  (Note – the audio quality is poor.)

It is funny because Ron Paul will often avoid saying Donald Trump’s name for some reason, but it is easy to know exactly when he is talking about him.  He cannot stand Trump.  Maybe it is a personality thing.  Maybe it is because Trump stole Rand Paul’s thunder in the campaign as the outsider candidate.  But that is Rand Paul’s fault for trying to play all sides and running such a terrible campaign.

My position is that we should praise Trump for the good things he says and criticize him for the bad things he says.

Trump seems like a decent guy.  Everything I have read from people that actually know him is generally positive.  His employees and former employees say he treated them well.

If Trump is generally honest and decent, that puts him way ahead of everyone else right away.  Maybe Bernie Sanders is decent, but even there I have my doubts.  I could be completely wrong on Trump, but at least there is a chance of decency with him.

Trump is a lot like Pat Buchanan in terms of the policies he promotes.  He is somewhat isolationist in the sense of foreign policy and economics.  I don’t agree with Buchanan or Trump when it comes to certain economic policies, particularly free trade.  Promoting or threatening tariffs is bad economically and morally.

But Pat Buchanan seems like a gentleman as well.  And at least they are somewhat sensible when it comes to issues of war.  Trump is certainly inconsistent, but inconsistency is better than being consistently belligerent.  Again, we don’t know what Trump would do as president, but at least there would be a chance for some peace.

Trump is also exposing the corruptness of the whole system.  Colorado handed all of the delegates to Cruz.  When I say Colorado, I  mean the Republican Party insiders.  The general populace registered Republican did not actually get to vote.

If Trump is denied the nomination, maybe this will be good in the sense that it wakes people up.  Maybe they will realize that the system is rigged against them.  But until they stop asking the government to do things for them, not a lot is going to change.

In conclusion, libertarians can cheer on Trump without endorsing him.

The latest consumer price index (CPI) numbers are out for March.  The CPI rose 0.1% in March 2016.

That is the number that gets the headline news.  The median CPI, which is far more stable (and probably reliable) was up 0.2% in March.  Year over year, the median CPI is up 2.4%.  It has been at 2.4% or 2.3% for at least the last 6 months.

The bottom line is that consumer price inflation is low, at least according to government statistics.  If we lived in a free market world without central banks and fiat currencies, then there would likely be no price inflation, or there would even be mild deflation.  This would reflect increased productivity.

But compared to the last 100 years with the existence of the Fed, the price inflation is relatively low.  I don’t think it properly accounts for the steep rise in health insurance and medical care costs.  And that is what most families are struggling with in terms of increasing expenses.  But that is as much or more a reflection of government policies than it is of monetary policy alone.

The Fed has been in tight money mode for a year and a half since QE3 ended in October 2014.  Interest rates have stayed low, but that is a market response to the fear in the economy and the Fed’s previous loose policy.  The massive excess reserves built up by the commercial banks mean they don’t have to borrow overnight funds to meet reserve requirements.  This keeps the federal funds rate low.

There is continued debate about whether interest rates will go up or down.  In the short run, I still see a greater probability of interest rates staying flat or going down further.  This is a reflection of a weakening economy.

I think interest rates will only spike significantly when price inflation becomes a problem, or at least a perceived problem.  It is not a perceived problem by most people right now.

Therefore, I continue to conclude that interest rates will not spike higher until we see higher price inflation.  I know the government statistics should be taken with a grain of salt.  But they are useful for a trend.  And right now, there is no sign of price inflation picking up with any significance.

At some point in the future, there will be a time where it will be very profitable to bet against bonds, or in other words, bet on higher interest rates.  It will be one of those great opportunities that does not come around very often for investors.  But that time is not now.  We are still not close to it.

We will probably have to see more so-called quantitative easing from the Fed before we see a significant increase in price inflation.

Therefore, I would bet on gold before I would bet on higher interest rates.  Rising interest rates will lag behind rising gold.  I can’t be certain of any of this, but that is how I see it playing out.

The likely order is: recession, then Fed money creation, then rising gold, and finally rising interest rates.

We can’t be sure of any of this because it all revolves around human decision making.  But the safest bet is on the Fed going back to money creation when times get tough.  You never know what could happen, but it is usually a safe bet when dealing with central planners at the Fed.

Mortgage rates recently hit a low for the year and they are near historic lows.  Right now, you can get a 30-year fixed rate mortgage for a rate of about 3.65%.  A 15-year fixed will only cost you a rate of about 2.75%, assuming good credit.

If you are buying a house or refinancing your house, then I generally recommend a fixed-rate loan, assuming you are planning to stay there a while.

(As an aside, if you aren’t planning to live somewhere for long, then you probably shouldn’t be refinancing or buying in the first place, unless you are planning to keep the property for investment purposes.  But if you are going to sell in the near future (within 5 years), you are going to get eaten up by closing costs, agent fees, and the other expenses of home ownership.  It is not worth it.)

If you had asked me 10 years ago, I would have said to get a fixed rate mortgage.  I would have been wrong in the sense that your payments would have been lower with a variable rate.  I wouldn’t regret recommending that though, because it is a little bit like insurance.  I don’t regret recommending that someone get insurance for something just because, looking back, nothing bad happened.

So it is not that I am betting on higher rates.  It is just more of an admission that we can’t predict the future.

Actually, if I had to guess, I think rates will probably go down in the near future.  I may be in the minority of libertarian opinion on this.  Some libertarians have been predicting much higher rates for many years and it has failed to come to fruition.  Rates will eventually go higher, but what if it is another decade or more?  I don’t think it will be this long, but it isn’t useful to say that rates will go higher without any time reference at all.

If you are taking out a 30-year mortgage, it is basically impossible to predict what rates will be in 20 or more years.  We could be like Japan for the last couple of decades where there have been really low (now negative in some cases) interest rates.  We could also be like the U.S. of the 1970s with double-digit interest rates.

So if you are buying or refinancing and plan to hold the mortgage for a long period of time, it just generally makes sense to go with a fixed rate mortgage.

There are still times when it makes sense to get a variable rate.  The rate will start out lower than a fixed rate because you are absorbing some of the risk.

But if you are getting a 15-year mortgage and the principal balance to start isn’t all that high, it might make sense to take a little extra risk and go with a variable rate, especially if you are in a good financial position.

Let’s say you only have a mortgage balance of $80,000 left on your house with about 15 years to go on the loan.  You can refinance with relatively low closing costs.  You can refinance to a 15-year loan, which is what you have left anyway.  You can get a lower rate with a fixed rate or a variable rate, but the variable rate will be lower to start.  There is no guarantee after that.

Since the balance is so low, there is not nearly as much risk in getting a variable rate.  As the balance is paid down, the risk gets less and less.  If rates spike in 5 years, you can always make the decision to pay down the principal balance more aggressively if you have the extra funds to do so.

When deciding on a mortgage, or really almost any financial decision, you really have to consider all of the factors in your life that will be unique from anyone else.  The key is to know what the important factors are and how much weight they carry.

This is why it is hard to make blanket statements such as “You should always get a fixed rate mortgage.”  There are some people who really should get a variable rate mortgage.  Even your personality may affect your decision.

I expect rates will stay low for a while longer because of recession fears.  But if you are buying a house for the long term, then it typically makes sense to get a fixed rate so that you can sleep at night and not worry about what your monthly payments will be next year.