I have been a harsh critic of Thomas Sowell.  I fully understand that he has done some great things for liberty, and that on some issues of economics, he writes clearly and concisely.

Still, I know a lot of libertarians who like, or at least sympathize, with Sowell.  I do not.  I think he is a statist.  He wants to inject your children with vaccines.  He is generally a militarist.

I agree with Sowell on some economic issues.  So what?  I agree with some leftists on the drug war and foreign policy.  Even on some important economic issues, I am not with Sowell.  He is largely silent on the damages of the Federal Reserve.

Sowell recently wrote a column effectively endorsing Ted Cruz.  He doesn’t come right out and say it, but it is as close as you can get to an endorsement without actually uttering the words.

Sowell cites the importance of the passing of Justice Antonin Scalia.  I recently wrote a piece on why libertarians should not be so quick to revere Scalia.

Sowell comes across as the typical conservative, saying that the vacancy on the Supreme Court “makes painfully clear the huge stakes involved when we choose a President of the United States, just one of whose many powers is the power to nominate justices of the Supreme Court.”

The Supreme Court is used to divide the nation politically.  Both sides will come out and tell us how important this election is because of the nomination of Supreme Court justices.  We are always told that this is one of the most important elections of our lifetime.  It is left unsaid on what has gone wrong that 9 justices are deciding on policy for over 300 million Americans.

Sowell concludes his article saying that he has criticized Cruz before and will undoubtedly criticize him again.  But, “As someone who once clerked for a Chief Justice of the Supreme Court, he will know how important choosing Justice Scalia’s replacement will be.  And he has the intellect to understand much more.”

Ted Cruz is a politician.  His wife is part of Goldman Sachs.  He has a reputation of being outside of the establishment.  I have to admit that he is far from the establishment’s first choice as a nominee.  But they prefer him over Trump.

Cruz says he wants to bomb ISIS to see if sand can glow in the dark, meaning he wants to nuke the Middle East.  He occasionally questions U.S. foreign policy in subtle ways, but we can be sure he will be terribly pro war in office.

Even when it comes to economics, Cruz is not that great.  He is not preaching a major cutback in the federal budget.  I don’t hear him making constant calls to abolish the Department of Education or any other major departments or programs.

Sowell has gone from endorsing Newt Gingrich to Ted Cruz.  Meanwhile, he has little nice to say about Ron Paul.  And some people want to associate Sowell with being a libertarian, or even sympathetic to libertarianism?

In his article, Sowell talks about the extreme dangers in our world “where our adversaries’ military power and aggressiveness are increasing, while our military forces are being cut back.”

Sowell is a conservative.  He is preaching the line about our military being cut back as the U.S. government occupies most of the world in some form or another.  He thinks others are being more aggressive, yet he can’t bring himself to question U.S. foreign policy at all.

If you read an article by Sowell that helps explain an economic issue clearly, then by all means share it with your friends.  Just please don’t delude yourself into thinking that Thomas Sowell has anything to do with libertarianism.  He is a conservative and a statist.  Occasionally his thoughts overlap with libertarians.

My analysis of the presidential race will continue, even though I don’t support any of the candidates.  You could say that I despise some less than others though.  I have occasional sympathy for Trump, and even a little for Sanders, just for giving such headaches to the establishment.

Before discussing the South Carolina Republican primary, I just want to say a couple of things about Nevada, where caucuses were held for the Democrats.  Hillary Clinton won, although not by a big margin.

Even though Bernie Sanders has strong support from young people and the grassroots, he is not coming away with victories in the caucus states.  Of course, these states are a bit more prone to rigging, as we saw with all of the strange happenings in Iowa with coin flips and everything else.  When there is room for shenanigans, it will favor the establishment candidate.

We don’t really have a good measure yet in the Democratic race because Iowa and Nevada both had caucuses and New Hampshire has open primaries, which would tend to favor Sanders.

I have said that I think Sanders is the third biggest threat to Hillary Clinton right now.  The second biggest threat is an indictment by the FBI for her secret emails that aren’t as secret anymore.  Her biggest threat is an economic recession.

On the Republican side, Donald Trump won easily with about one-third of the voters going for him.  It looks like Marco Rubio will just barely edge out Ted Cruz, but just by a fraction of a percent.  They are both just over 22%.  Perhaps Rubio is recovering from his New Hampshire debate.

Jeb Bush is finally dropping out of the race.  No matter how bad Donald Trump ends up being, I will forever be thankful to him for stomping on Jeb Bush like a little cockroach.

At this point, we can basically write off Kasich and Carson as well.

So it is left between Trump, Rubio, and Cruz.  I can’t help but think that Cruz was damaged in South Carolina though.  It is evangelical country.  If Cruz can’t win there, or at least make a strong second place showing, then I can’t imagine him doing well anywhere else, except maybe Texas.

It is interesting that the three candidates still in the hunt are not governors.  Two are senators and one is a businessman.  Although the 2008 matchup was two senators (Obama and McCain), it is not that common.

At this point, I think we should expect Trump to be more guarded in his comments, but that may seem hard to believe.  Even if all of the Bush votes had gone to Rubio, he still wouldn’t have had enough to beat Trump.

Rubio would have to get most of the other supporters to coalesce around him quickly.  That would mean Kasich and Carson supporters would have to go to Rubio as well, which is far from certain, especially with Carson.

Trump’s best scenario is that Cruz and Rubio both stay in the race for the long haul to split votes.  He should hope that Carson and Kasich stay in as well.  He wants the anti-Trump vote to be split up for as long as possible.

A Trump vs. Clinton matchup is looking more likely.  It is hard to believe that the bigger pro war candidate will be coming from the Democratic side.

With the recent death of Supreme Court Justice Antonin Scalia, there has been much reflection of his life and his beliefs.

Scalia has the reputation of being an originalist, meaning he interpreted the U.S. Constitution according to its original intent.  He also has the reputation of being a conservative.

I have heard the typical comments about Scalia from the left and the right, which seem to be mostly talking points.  But I have also heard some libertarian commentary on him, which I will comment on below.

I would like to say that everything I have heard and seen about Scalia indicate that he was highly intelligent.  Even many on the left will admit that.  He also seemed to have a good sense of humor and to be likable in person.

In terms of his time as a Supreme Court justice, there is no question that he was a little different.  His written opinions were often well thought out and he was skilled at using rhetoric.  He is beloved by the conservative wing of the Republican Party, which is not surprising given his conservative stances.

Scalia also makes Ronald Reagan look good to conservatives.  Reagan’s other nominees who made it through confirmation were Sandra Day O’Connor and Anthony Kennedy, who are not known to be nearly as conservative.  Reagan also nominated Robert Bork, but he was blocked by the Senate.

I have heard and read some commentary by libertarians on Scalia including a piece by Judge Andrew Napolitano, who was actually a friend of Scalia’s.  The great Tom Woods also did a podcast with Kevin Guzman on the topic.

These are libertarian greats that I admire and learn from.  With that said, I thought they were much too soft on Scalia.  It is understandable that Napolitano does not want to criticize his friend who just passed away.  As far as the discussion between Woods and Gutzman, they did have some light criticism of Scalia, but I thought they could have gone deeper in some respects.

I don’t expect libertarians to agree on everything and that is fine.  But for those who don’t know a lot about Scalia, I just want to shed a little bit of light.

In terms of disagreement, libertarians often disagree on the U.S. Constitution.  Some think that we should defend it and uphold it.  Some think it is just a piece of paper that is meaningless.  Some think its adoption was a coup against the Articles of Confederation to centralize power.

Despite disagreements between constitutionalists and anarchists and others, most libertarians agree that we would be much better off if the U.S. government actually obeyed the Constitution and its enumerated powers as compared to the monstrosity that we have now.

I will also acknowledge that libertarians have differing views of certain aspects of the Constitution including the 14th Amendment and how it applies to states, and also about judicial review.  On the latter, there is a question of whether the U.S. Supreme Court should strike down laws that it deems unconstitutional.

Scalia had nearly 3 decades on the bench, so there are obviously a lot of rulings to examine.  There are many cases where libertarians could reasonably disagree.  But I just want to focus on one particular case where I’m guessing at least 99% of hardcore libertarians would agree on what the ruling should have been.  It is a case where, for me, it shows that Scalia was a conservative first, and a constitutionalist second, if at all.

The case is Gonzales vs. Raich.  It was argued in 2004 and decided in 2005.  The Court ruled by a 6 to 3 vote that the U.S. Congress can criminalize the production and use of home-grown cannabis where a state has legalized its use for medicinal purposes.  The ruling was justified under the Commerce Clause.

Realize that this doesn’t even involve the trading or selling of marijuana across borders, although I still believe that the only way this could be a legitimate case in front on the U.S. Supreme Court is if there were some kind of dispute between the states.  The federal drug laws are still unconstitutional, regardless of whether drugs are crossing state lines.

Still, this case was very narrow in just referring to home-grown marijuana.  In this case, the so-called originalist, Antonin Scalia, sided with the majority.

Of course, Scalia wrote his own opinion, separate from the majority, trying to dance around his interpretation.  But for me, this case makes it rather clear that Scalia was a conservative first and foremost.

The three dissenting opinions were Sandra Day O’Connor, William Rehnquist, and Clarence Thomas.  Actually, it was Justice Thomas in this case who had strong rhetoric on his side.  He wrote a scathing dissenting opinion, pointing out the absurdity of it all.

Thomas wrote that if the federal government can regulate this, “then Congress’ Article I powers – as expanded by the Necessary and Proper Clause – have no meaningful limits.”

Thomas also wrote: “If the majority is to be taken seriously, the Federal Government may now regulate quilting bees, clothes drives, and potluck suppers throughout the 50 States. This makes a mockery of Madison’s assurance to the people of New York that the ‘powers delegated’ to the Federal Government are ‘few and defined’, while those of the States are ‘numerous and indefinite.'”

I have had my disagreements with Clarence Thomas over the years as well, but by looking at this case, it is clear that there may be a much stronger case for libertarians to at least sympathize with Thomas over Scalia.

The federal drug war is a great issue to test conservatives who supposedly pledge allegiance to the Constitution.  There is obviously no enumerated power in the Constitution giving Congress the authority to legislate drug laws.  If a conservative believes that drugs should be illegal in all 50 states, but that ultimately it is up to the states to decide, then that would be consistent with taking an originalist approach in interpreting the Constitution.  But let’s face it; most conservatives strongly favor the federal war on drugs.

Again, I know libertarians can have differing views that are reasonable, but I thought it was important to point out this one particular case to show that Scalia was nothing close to a libertarian and was not even a strict constructionist or originalist when it conflicted with his personal conservative views.

I am a strong advocate of a permanent portfolio as described in Harry Browne’s book Fail-Safe Investing.  I believe it should make up the majority of one’s investable assets outside of any real estate or business ownership aside from stocks.

The permanent portfolio is simple.  Anyone with a little financial knowledge should be able to set one up with relative ease.  It just takes a little discipline in sticking to it and occasionally rebalancing.

The portfolio consists of cash, long-term government bonds, stocks, and gold.  The four investment categories are divided up equally.  You will have approximately 25% of each.  If any one investment gets too far above or below the 25%, then you can rebalance it.

I have mentioned ways before of tweaking the portfolio.  If you are a particularly aggressive investor, you could consider reducing your cash portion and adding it to the other portions.

For example, you could put just 10% into cash, and put 30% each into stocks, bonds, and gold.  This would make it more volatile.  You would also probably get hit harder in a recession.  Of course, the lack of volatility is one of the main attractions of the permanent portfolio.

When we talk about cash, it isn’t really cash.  Most of your cash will be in a checking account or short-term debt instruments.  You might have your “cash” in a money market fund, a savings account, or even a very short-term cd.

While I have made the suggestion of possibly reducing the cash portion for aggressive investors, I do want to emphasize the importance of cash in the portfolio.

First, as I already alluded to, cash is good to have in a recessionary environment.  It provides some stability.  As the saying goes, cash is king in a recession.

Second, even though cash would be seemingly bad in an environment of high inflation, it isn’t necessarily terrible.  If you have an environment of high price inflation and high interest rates as was seen in the 1970s, then cash won’t be as bad as you might think.  The reason is that you are still earning high interest rates.  The real interest rate (as opposed to nominal) may still be slightly negative, but at least it is somewhat keeping up.  In today’s environment, you are definitely getting a real negative interest rate on short-term debt.

Third, and probably most important, is that cash is there for rebalancing in a recession.  That is one of the reasons cash is king in a recession.  You have cash to buy beaten down investments while almost everyone else is feeling broke.

If we hit a recession and stocks and gold both go down, while bonds stay about even or even go up, then you will be able to use some of your cash position to buy gold and stocks when they are down.  That is one of the big benefits of the permanent portfolio.  You are forcing yourself to buy low and sell high.

The permanent portfolio has a bias built in for higher price inflation.  Overall, I think this is positive.  You obviously need higher returns during a time when you are losing purchasing power.

The permanent portfolio has basically done nothing over the last several years in terms of returns.  We are in an environment of low interest rates, relatively low price inflation, and struggling growth.  It is not a surprise that the portfolio is not up, especially considering the major downturn in gold until recently.

I still think the permanent portfolio is the best option for the passive investor.  It is probably the best option for most non-passive investors as well.  It is designed to hold up in any economic environment.

I believe that we are likely headed into some kind of a recession.  I am not stating that here for speculative reasons, but just to confirm the importance of having 25% cash in your permanent portfolio.  The bonds are also vitally important, as interest rates could fall even further.

If stocks plunge, then you will have other assets available, such as your cash, to buy stocks when they are low.

The permanent portfolio may not seem too exciting right now, but you will be happy when stocks are plunging and your friends can’t sleep at night.  You won’t worry too much if you lose a few percentage points here and there.  And you will have cash available to buy when virtually nobody else wants to buy or nobody else has the money to do so.

Stocks have been taking a pounding so far in 2016.  It may or may not be a coincidence that they have been in virtual free fall since the Fed’s decision to “hike rates”.

I fear that people are going to blame the Fed for the wrong reasons.  The Fed is certainly at fault, along with the massive spending by the government, but it is not because of the Fed’s little rate hike in December.

The reason the economy is on the verge of recession is because of the massive monetary inflation from 2008 to 2014.  The Fed ended QE3 in October 2014.  Despite the low interest rates, the Fed has been in tight monetary mode for over a year now.

The Austrian Business Cycle Theory teaches us that when the money supply stops expanding, or even decelerates, the unsustainable bubbles that occurred due to the easy money will be exposed.  The malinvestment is exposed as malinvestment.

A recession will occur, which is basically a correction of the misallocated resources.  The only viable way for a recession to be avoided is for the money supply to grow again, and even this may not be enough.  And if the recession is avoided, it is only temporary, as the resources continue to be misallocated.

The sinking stock market is a strong indication of a recession.  There is even talk of it in the media (outside of the internet).

Like so many things in economics, cause and effect are often confused.  It is important not to make this mistake in terms of falling stocks and recession.  There is a correlation of falling stocks and recession, but falling stocks do not cause a recession.  The falling stocks are a symptom.  Correlation does not mean causation.

Treasury rates are telling us a similar story.  The 10-year yield is now around 1.64%.  The 30-year yield is about 2.5%.  The yield curve is not close to inversion, but it has flattened a bit.  An inverted yield curve, or even a flattening yield curve, is a classic sign of a recession.

Perhaps the most interesting thing to me is that gold has done really well.  It has burst above $1,200 per ounce.  It is surprising it has done so well in the face of a possible recession.  Gold does not typically do well in a recession that is coupled with relatively low price inflation.

Gold stocks, which have been beaten down badly over the last several years, have shown a lot of signs of life.  I don’t know whether this is the start of a new bull market for gold stocks, but it is encouraging.  When a new bull market in mining stocks does emerge,  there will be huge potential profits in this sector.

I think everyone should be preparing for a recession.  I hope the Fed keeps a tight monetary policy and allows it to happen.  Maybe one day we can actually have a real and genuine recovery.  The last time anything close to that happened was in the early 1980s when Paul Volcker allowed interest rates to skyrocket with a tight monetary policy.

I am still a strong advocate of the permanent portfolio, or something similar.  It has not performed very well over the last several years, but this is an environment of low interest rates and low price inflation.  Still, the permanent portfolio has been great to have over the last two months.  It also shows why bonds are still an important piece to the puzzle.

If you are a conservative investor, stick with the permanent portfolio.  Even if you are more aggressive, I still think you should have over half of your investable assets in such a setup.  For the speculative money, I am looking at mining stocks.  I also want to consider silver, but silver has yet to show the same signs of promise that gold has.

Most importantly, it is a time to make sure that you have a reliable source of income.  It is also important to have a good Plan B.

Unless the Fed steps in and starts another round of money creation, we should assume that a recession is likely.  The plunge in stocks is not causing the recession.  It is telling us to watch out for one.

What do Peyton Manning and Marco Rubio have in common?

They both like to recite rehearsed lines multiple times.

What is the difference between Peyton Manning and Marco Rubio?

In the case of Peyton Manning, repeating the same line isn’t what ended his career.

Ok, so maybe Rubio isn’t done yet.  I really don’t know.  After the Iowa Caucuses, I thought Rubio was the frontrunner for the Republican nomination.  I figured that Bush, Kasich, and Christie would all drop out soon and the establishment would all get behind Rubio.  Rubio was the favorite according to the betting sites.

Then the Saturday night debate happened.  Rubio stood and there and recited a line about Obama.  Chris Christie then accused Rubio of reciting memorized lines.  So what does Rubio do, but simply recite the same line over again.

After winning the Super Bowl, Peyton Manning said in back-to-back interviews that he wanted to kiss his wife and drink some Budweiser.  It seemed like a rehearsed line, since he repeated it.  But at least Manning is a football player.

Chris Christie severely damaged Rubio.  It didn’t do a lot for Christie, as he will likely finish just behind Rubio in New Hampshire.  But Christie did a huge favor for Donald Trump and Ted Cruz.

Now Trump is back to being the favorite.  He easily won in New Hampshire, as he was expected to do.  John Kasich will take second, but it is hard to imagine Kasich doing anything significant after New Hampshire.  Cruz will likely finish in third, with Bush just behind him.

Where will the establishment turn?  Will they get behind Kasich?  Will they return to Bush?  Will they go back to “repeating Rubio”?  Or maybe they will just accept Ted Cruz in order to beat out Donald Trump.

On the Democratic side, Bernie Sanders will win New Hampshire as expected.  But Sanders is winning by a wider margin than expected.  Hillary Clinton is really feeling some heat.  If she looks one way, she sees the FBI investigating her no-longer-secret emails.  If she looks the other way, she sees Bernie Sanders.  And if she gets by both of them, then she looks behind her at a looming recession.

Although Ron Paul is not part of this presidential race, it has still been somewhat unexpectedly pleasing.  If there are two anti-establishment candidates in this race, they are Trump and Sanders.  I don’t think they would bring any major changes to this country, but the establishment can’t stand them.

So while I have my many issues with Trump, and I have even more issues with Sanders, it is nice to see them causing an uproar.  It is also nice to see a little rebellion in the citizenry, even if the candidates are not very good.

It probably won’t make much difference who wins the presidency, but at least the voters are showing discontent.  If there is one area that a president can have some influence, it is in regards to foreign policy.  And while Sanders and Trump are not non-interventionists, they are seemingly less pro war than the rest of the candidates.  We don’t know what they will do if in office, but we know the other candidates are basically a guarantee for more war.

The answers to our societal problems do not lie in politics.  But at least the voters are turning away from the conventional politics of the establishment.

The Federal Reserve currently has a tight monetary policy.  This tight monetary policy may speed up our way to a recession.  But this is as it should be.

If we get a recession, it is because of the previous loose monetary policy from 2008 to 2014.  It was a giant misallocation of resources.  A recession would be the market’s attempt to correct this.  That is why “correction” is a good term to use.

If the Fed kept a loose monetary policy, it wouldn’t make things better.  It would make things worse.  But it may delay the inevitable correction.  It will also make the correction more severe, thus more painful when it arrives.

When I say the Fed currently has a tight monetary policy, sometimes I get a quick retort to the effect of, “Yeah, raising interest rates up to a half percent is really tight.”  But it is a mistake to pay attention to the Fed’s interest rate – the federal funds rate – instead of paying attention to the money supply.

Since the banks hold well over $2 trillion in excess reserves, there is little need for overnight lending.  Therefore, the federal funds rate is almost meaningless in terms of the money supply.  The Fed did not have to severely deflate the monetary base in order to hike the federal funds rate.  It raised the rate paid on excess reserves, helping to put a floor under the federal funds rate.

I recently noticed that excess reserves held by banks had gone down quite significantly over the last few months.  They are down by about $300 billion.  Is this a sign that lending has increased and that massive price inflation is on the way?

But then I looked at the adjusted monetary base.  That is also down.  So the decrease in the Fed’s monetary base is down in correspondence with the excess reserves.

I don’t believe this is a result of the Fed selling off assets.  If it is, then the Fed is going against its own policy, which is to keep a stable monetary base by rolling over maturing debt.

The most likely explanation is an increase in reverse repurchase agreements, also knows as reverse repos.  Reverse repos are a tool used by the Fed to temporarily borrow deposits from depository institutions.  It has the effect of reducing the Fed’s assets.

When the Fed announced its hike in the federal funds rate in December, it notated at the bottom of the FOMC statement two ways it would do this.  One was to increase the rate paid on excess reserves from 0.25% to 0.5%.  The second was to increase the rate paid on reverse repos to 0.25% (25 basis points), which had previously been around 5 basis points.

I believe this change can explain the reduction in the monetary base and the corresponding reduction in excess reserves.  As long as these two pieces of data stay in line, then it means the money supply is relatively stable.  This means a tight monetary policy by the Fed.  It is not deflating, but it is also not inflating.

Since the easy money is drying up, the malinvestments from the previous loose monetary policy will be exposed.  We are going to get a correction soon unless the Fed changes course.

If the Fed starts QE4 and follows Japan with negative interest rates on excess reserves, then it might delay the recession.  Even with that, it may not be enough to delay it for long.

Timing the market is tough to impossible.  I am not trying to time the market precisely here, but some kind of a correction looks inevitable, whether it is beginning now or a year from now.  My guess is that it will start this year, if it hasn’t already.

The Rand Paul 2016 presidential campaign is apparently over.  For Paul, the focus will shift to his 2016 senatorial campaign.

After finishing 5th in Iowa with less than 5% of the vote, Rand Paul has suspended his campaign.  This is basically the same thing as someone saying he is ending his campaign.  This was probably Paul’s best decision to date in regards to his presidential run.

I have been really tough on Rand Paul over the last 6 years, but particularly in the last year with his presidential run.  Sometimes we are tougher on people where we see some potential, but where that potential is not being realized.

I think it is important to realize that Rand Paul is not a libertarian.  He is not his dad.  If he had come right out in the beginning and refuted libertarianism, I probably would have been less tough on him, or at least not paid as much attention to him.

But Rand tried to have it both ways.  He wanted to play ball with the establishment, while keeping a large segment of his father’s base.

In many ways, Rand Paul put a divide into his father’s base.  There were some Ron Paul people who whole-heartedly supported Rand.  I had some informal debates with a few of them.  They would admit that Rand wasn’t as hardcore as his father, but excused it because he just had to say those things to get elected.  It was some of the same people who told me he had to act like a Republican to get elected to the Senate, but that he would be more liberty-oriented once in office.

If Rand actually did win the presidency, I always said that he would have to govern like an establishment Republican for the first four years just so that he could get re-elected.  If he were re-elected to a second presidential term, I don’t know what the excuse would have been at that point.

Rand is just not a libertarian.  He tried to play both sides of the fence and he ended up turning off both sides.

A Facebook friends of mine posted a video of Rand in his last debate with Rand pointing out that the drug war disproportionately harms the black community in terms of sending black people to prison.  My Facebook friend said that none of the other candidates would say such a thing, which is probably true, at least on the Republican side.

I commented that Rand did not actually call for an end to the federal war on drugs.  I said that for all I know, he may just want to send more white people to prison.  My comment was somewhat sarcastic, but very truthful in a way.

Rand Paul can stand up there and say that a disproportionate number of black people are going to prison for drugs.  But what is his solution?  He hasn’t said anything about pardoning them or even scaling back the war on drugs.  So what does his comment accomplish?  It doesn’t really impress any side.

Rand’s positions (that’s multiple) on foreign policy have been terrible and inconsistent.  Sure, amongst Republicans, he is less hawkish.  That isn’t saying much with this group.  But even here, it was Donald Trump that first came out swinging against the Iraq War, calling it a disaster.  That left Rand, in a later debate, saying “me too”. It wasn’t all that convincing.

And when the Middle East comes up, Rand will start out saying we need to be cautious.  Then he will go on to say that he supports Israel, which probably means supporting Israeli wars.  He says we need to arm the Kurds and form a new country in the Iraq region.  It is a lot different from his dad who would just say that we need to bring all of our troops home.  Again, who is Rand trying to impress with these stances, or lack of stances?

Even on fiscal matters, Rand was pretty bad.  He was beaten out by Ted Cruz.  I don’t trust Cruz, but Cruz usually sounded more radical than Rand.  Rand’s economic policies revolve around auditing the Fed and balancing the budget in 5 years.

Who really cares about auditing the Fed?  Maybe it would be nice, but that game would probably be rigged.  Ron Paul advocated auditing the Fed, but his book was titled “End the Fed”.  If Ron had written a book titled “Audit the Fed”, I doubt it would have been nearly so popular.

Why didn’t Rand stand up there and say that he wanted to eliminate the Department of Education, the Department of Agriculture, the FDA, the Energy Department, and even the Department of Homeland Security?  Could he even have just picked one of those and mentioned it in a debate?

The point is that Rand really probably doesn’t believe these things.  And if he does at all, then he chooses political power over getting out the message of liberty.

I assume Rand got some really bad campaign advice.  His father was kept off the scene until the very end when they became desperate.  Rand Paul even tried to shy away from who he is in terms of his last name.

For me, this settles a debate that I have had with other libertarians for years.  In fact, I have believed this since before Ron Paul ever ran for president on the Republican ticket.  I believe that Harry Browne helped me learn this key point.

The key point is that a more radical and consistent message is better for selling liberty.  It is more honest, and I think people respect that honesty.  It is also educational and can actually win converts to libertarianism, as Ron Paul showed in 2008 and again in 2012.

I have heard over and over again through the years that the libertarian message needs to be toned down.  We need to moderate the message to appeal to a broader range of people.  We need to be more pragmatic and win elections.

How did that work out for you Rand supporters with the Rand Paul campaign?

Rand Paul received about one-third the number of votes in the Iowa caucuses as his father did in 2012.  This was with a much higher voter turnout in 2016.  Politically speaking, Ron Paul was far more successful than his son.  Yet Rand’s campaign was the epitome of the libertarian-lite message.  He moderated his stances and tried to appeal to a broader audience.  It failed completely.

In Ron’s campaigns, he was very good at speaking to different audiences with different tones and language.  He tried to relate certain issues to certain groups.  But he stuck to his principles.  He wasn’t necessarily telling people what they wanted to hear, but he was delivering his message in a way that sold it.  But he didn’t turn his back on his libertarian principles to sell his message.  Harry Browne was also very effective at sticking to his principles but selling his message in his campaigns in 1996 and 2000.

If Rand really were a libertarian and he had come out with a strong libertarian message like his father, then Rand would likely be moving on to New Hampshire.  He probably would have been in the top 3 in Iowa.  Ted Cruz might not even be a factor right now.

But Rand listened to his wise political advisors who told him to stay away from his dad and to moderate his message.  It turned out to be a message worth 5th place in Iowa.  The worst thing is, he damaged the libertarian message and has probably set back the libertarian movement, even if temporarily.

Libertarianism is not dead.  There just weren’t any candidates for hardcore libertarians to get excited about.

The first votes have been cast for the 2016 presidential election, and it has not lacked excitement.  While I am anti-political, I still enjoy the show.

Even though it probably doesn’t matter much who actually wins the presidency, it is still useful in determining where public opinion lies.  There is no question that this is the year of the anti-establishment candidates.

It isn’t that Trump, Cruz, or Sanders are anti-establishment, but the establishment doesn’t really like them.  They would prefer a safer choice in Hillary Clinton or Marco Rubio.  Maybe it will end up being Rubio and Clinton facing off in the general election, but there is no question that this election season has been different with the traction of the perceived outsiders.

On the Democratic side, it still isn’t clear who won Iowa.  It looks as though it was Clinton, but the Sanders camp may not be crazy for thinking that there were “irregularities”, to put it politely.

I still don’t know if this is true, but supposedly the Clinton camp won 6 different coin tosses.  Aside from the issue of nominating a candidate based on coin tosses, what are the odds of this happening?  First, what are the odds of having to settle so many ties based on coin tosses?

If there were just 6 tosses and the Clinton camp won every one, then this is really unbelievable.  That is a one out of 64 chance.  But whether it is coin tosses or trading cattle futures, Hillary Clinton tends to have luck on her side.

Bernie Sanders will probably win New Hampshire, but he is going to struggle in the south.  I think Bernie Sanders is Hillary Clinton’s third biggest problem at this point.  Her biggest problem is a possible FBI indictment for her email scandal.  Her second biggest problem is a possible recession.  Maybe that is why Martin O’Malley is hanging on.  A potential indictment is why Sanders should definitely stay in the race, even if it gets to a point where it looks as though he is going to lose.

On the Republican side, Ted Cruz (27.6%) came out with a surprise victory over Donald Trump (24.3%).  Marco Rubio (23.1%) came in a strong third.  The next closest was Ben Carson, who only had 9%.

Looking at these results is similar to looking at an economy.  There are so many moving parts, we don’t know what impacted what.  Did Cruz win because Trump skipped the last debate?  Many people thought Cruz performed poorly in the last debate though.  Would Cruz have done even better if Trump had been in the debate?

My guess is that Trump won’t be skipping any more debates.  Still, we have to realize that Iowa is evangelical country.  This is where Mike Huckabee won in 2008 and Rick Santorum won in 2012 (although Ron Paul ultimately won the delegate count).  They both went nowhere.  Trump will win in New Hampshire where independents vote.

Rand Paul had predicted that the polls were wrong.  He was right about that.  We were told that Cruz had a strong ground game in Iowa.  Caucusing is different from regular voting, so it makes the polling trickier.

So Rand Paul was right on at least one thing.  The polls were wrong.  Unfortunately for him, his percentages were in line with the polling data.  He received less than 5%.  His vote total was about one-third of his father’s total 4 years ago.  And there were a lot more voters who showed up in Iowa this year.

On the Republican side, I think every candidate other than Trump, Cruz, and Rubio should drop out.  If they don’t drop out this week, they definitely should after New Hampshire.  I just don’t see any of them surging into the top three at this point.

February 9th with be the New Hampshire primary.  Trump and Sanders should win, but it will be interesting to see if anyone on the Republican side (other than the top 3) can gain any traction.

I miss 2008 and 2012 when Ron Paul was in it.  I miss the strong libertarian message that we saw at every debate where he participated.  At least we have Trump and Sanders for their entertainment value this time around.

On Friday, the big financial news was the Bank of Japan (BOJ) announcing an interest rate cut into negative territory.  The news sent stocks soaring higher, including in the United States.

The announcement also drove down the Japanese yen and drove up the U.S. dollar.  The gold price was also up slightly.  It would have been up much more if it hadn’t been for the big gain in the U.S. dollar.

It is easy to read the headlines and say that Japan now has negative interest rates.  One might wonder if people will be lending money in order to receive less back in the future.  But let’s dig into this and find out the specifics.

The BOJ specifically cut the interest rate on excess reserves.  The rate will now be -0.1%.  In other words, it is just barely below zero.

This negative interest rate only applies to excess reserves.  For required reserves, the banks will not be charged anything.  Here is an article explaining the details.

So what does this mean?

It means that any money held by banks beyond their required reserves will get charged a fee.  It is a small fee, but the BOJ could always decide to make it bigger.

The purpose of this is to get the banks to lend out their excess reserves.  At some point, it becomes costly for banks to hold these excess reserves and it makes more sense to lend out the money, even if they are risky loans.

At some price, you can get people to borrow, at least on the margin.  If the banks start giving out loans at zero percent interest, I’m sure  a lot of people would be happy to borrow money at no cost.  If the rate were to go further negative, it is not inconceivable that banks could lend out money at a zero percent interest.  If the administrative fees are low and the risks are not deemed high, then it would be less costly than to hold the money as excess reserves.

This is interesting because some speculate that it will mean global currency wars.  Will other major central banks follow?  Actually, Japan is following the lead of other central banks in introducing a negative interest rate.  Different variations of negative interest rates have already been attempted by the ECB, Switzerland, and Sweden.

The BOJ’s announcement is going in the opposite direction from the Federal Reserve.  The Fed announced a hike to the federal funds rate back in December.  The only way it could achieve this hike was by hiking the rate it pays on bank reserves.  So while Japanese banks will get charged a 0.1% fee for excess reserves, U.S. banks are collecting 0.5% on their reserves.

This move by the BOJ is a rather desperate one.  It is supposed to be an attempt to get banks to lend, which means fractional reserve lending.  This policy is inflationary.  On the margin, it will be inflationary, but we don’t know if it will be significant.

In our Keynesian-dominated world, the central bankers think we need positive price inflation.  They can’t stand the idea of price deflation.  So they create money out of thin air, but it doesn’t always drive prices higher, as we have seen in Japan.

One of the main reasons is that the demand for money is high, which is partly because of the weak economy itself.  When people try to hold money for security, it slows down velocity and has an equivalent effect of reducing the money supply.  Money is changing hands less frequently.  The BOJ is trying to increase velocity by this move, and it is trying to increase the money supply through fractional reserve lending.

The Japanese economy is already a mess due to massive spending, massive debt, and years of money creation and interest rate tampering.  Resources have been misallocated everywhere, although not as bad as China.  The Japanese government debt is outrageous, making Greece look fiscally conservative by comparison.  But for some reason – national pride or something – the Japanese people keep buying government debt at low rates.

I don’t know if it will be this year or ten years from now, but eventually this whole thing is going to blow up.  Interest rates will spike and the debt will quickly become unmanageable.  It isn’t going to end well.

The problems are similar in the U.S., but I think to a lesser degree.  At least for right now, the Fed is not pumping in more money.

There is going to be a global recession.  The only thing is, when central banks make these moves, sometimes it enables them to kick the can down the road.  It ultimately makes the situation worse, but it can delay the inevitable.

The BOJ is in desperation mode.  Let’s see if the Fed turns to the same desperation at some point, if the economy gets bad enough.  In the U.S., there is a large pile of excess reserves in the banks.  If they come pouring out via bank loans, then we could see massive price inflation very quickly.  At this point though, there is no sign of that happening.