Frank Shostak has written an article for the Mises Institute about the Fed and the money supply.  Shostak is one of my favorite writers when it comes Austrian school economics and monetary policy in general.

In this article, Shostak says that the Fed could delay its tapering until after December.  In other words, the Fed may keep its foot on the accelerator and continue to pump in $85 billion per month.  He sees this happening because he is predicting a slowdown in growth.

Shostak rightly differentiates between the Fed’s balance sheet and measures of the money supply.  Shostak in particular uses “AMS”, a measure of money supply that he prefers.  The Fed’s balance sheet (I usually refer to the monetary base) is what the Fed directly controls.  But the lending of fractional reserves by banking institutions then drive the money supply in circulation.

The whole ballgame has changed since 2008.  Excess reserves are well above the $2 trillion mark.  They were a rounding error above zero back at the beginning of 2008.  Before the fall of 2008, banks lent out most of the available deposits.  They just kept enough on hand to meet reserve requirements.  The lending process of fractional reserves essentially multiplies the money supply in circulation.

Since the large majority of new monetary base money has gone into excess reserves, this has kept the money supply in circulation from rising as dramatically as it would have.  It is important to understand this because this is one of the reasons for what has allowed the Fed to pump in so much money without seeing really high consumer price inflation.

So despite the massive pumping (QE) by the Fed, Shostak still sees a reduced rate of growth.  He sees the economy weakening and hence his prediction that the Fed could delay tapering past December.

This is basically a lesson in the Austrian Business Cycle Theory.  You can still have a bust with continual increases in the money supply.  Just a reduced rate of increase is often enough to trigger the bust.  Of course, a bust is virtually inevitable when the boom is built upon loose money and artificially low interest rates.

In conclusion, if Shostak is right about all of this, then we may see a recession in the somewhat near future.  Unfortunately, if we do have another official recession hit, then it may just encourage the Fed to create even more money out of thin air.  This will mean an even greater misallocation of resources and a worse standard of living for the average person.  It also means we have to continual fear bank lending and the possibility of much higher price inflation.

With all of the talk about the government being shutdown, what does this mean?  National parks and museums will not be open for business.  Many government employees will not go to work, although a sizable portion will still be working (or whatever term you want to use for government employees showing up at their job).

Here is a list of 10 things that won’t happen with the government shutdown.

1. Drone bombings in Pakistan, Yemen and various other countries will not stop.
2. The various wars and occupations throughout the Middle East, Africa, and elsewhere will not come to a halt.  The military will not be coming home.
3. The NSA will continue to collect data and spy on the American people.
4. The IRS will not be shut down.  You will still have to pay your taxes or face consequences.
5. The Drug Enforcement Agency will still be knocking down doors in the middle of the night, trying to stamp out illegal drug use once and for all.
6. The government schools will not be closing.
7. Social Security and Medicare will continue to be funded.
8. Food stamps (or whatever the politically correct term used now) will not stop being distributed.
9. Foreign aid will keep flowing to dictators and various other politicians in other countries.
10. The Federal Reserve will continue to expand the monetary base by $85 billion per month, at least until it decides to “taper”.

Recently, Lew Rockwell ran an article by Eric Margolis in which he discusses the Swiss.  He points out that the Swiss have remained neutral for centuries and have avoided war.  He also points to Switzerland as a well-armed society and the fact that crime is really low there.

Unfortunately, Margolis does fail on one thing, at least from a libertarian perspective.  He touts the tradition of the compulsory military “service”.  While I understand his sentiments towards the Swiss, I don’t think any libertarian should agree with compulsory military service.

As Margolis points out, there are many things to like about the Swiss people.  I wish that the U.S. would emulate Switzerland in many ways, particularly when it comes to foreign policy.  And I suppose I would rather see a conscripted military that acts in defense only, over an all volunteer military that is starting wars all over the place.

(I understand that some might argue that the U.S. military is not voluntary.  There have been retired military who have been called back up.  Plus, we still have to register for the draft, even though we haven’t seen a draft since the 1970’s.  But as of right now, if you don’t sign your name on the dotted line with the military, you can stay out of it.)

While the Swiss system may seem like a good thing, and in many ways it is, nobody should be forced to do something against his will.  If a country is truly under attack, I’m guessing that many people would be more than happy to step up and defend their homeland from invasion.  And if most people are not willing to do that, then why should it be mandatory?  Perhaps it isn’t worth fighting for.

So while the Swiss system of conscription is preferable to conscription used to fight wars (think Vietnam, the so-called Civil War, and even the world wars, just to name a few), it is still morally wrong.  It is using force on others who have done no harm.

This subject reminds me of gun control.  There are a few small towns in the south that have, or attempted to pass, legislation that requires residents to own a gun.  And while I am all for responsible gun ownership, as most libertarians are, nobody should be compelled to own a gun.  This is not the opposite position of the gun control crowd who want to prevent gun ownership.  It is using government force to promote a certain position.  The true neutral and libertarian position is for individuals to be able to choose on whether or not to own a gun, assuming it is not being used to initiate harm against others.

In conclusion, Americans can learn a lot from the Swiss, but we should only emulate the good things.  Conscription is not a good thing, even if it is supposedly used in self defense.  The act of conscription itself is an aggressive act.