Bradley Manning was found not guilty of the most serious charge against him of aiding the enemy.  However, he was found guilty on multiple other counts, which means he could still spend the rest of his life in prison.  You can read the story here.

Manning is the whistleblower who released many government secrets and documents to Wikileaks.  Among other things, it exposed war crimes committed by the U.S. military in Iraq.

When Obama was first campaigning for president in 2008 and was elected, he praised whistleblowers and said they needed more protection for exposing waste, fraud, and abuse in government.  This was stated on his change.gov website.  This message about whistleblowers has since been taken down.  Obama liked the idea about protecting whistleblowers until they were blowing the whistle on the criminal acts of him and his administration (see Edward Snowden).

Not surprisingly, the verdict issued for Manning came from a judge and not from a jury.  In that sense, America is turning into a light dictatorship, as the government can arrest you, hold you, and convict you, without being tried before a jury of your peers.

Luckily, in most criminal cases in America, you can still get a jury trial.  It may not always be fair, but at least there is that possibility of being acquitted.  If you ever find yourself on a jury and there are multiple charges against someone, I think it is a good idea not to take the middle road, unless that is truly what the defendant deserves.  I see too many instances where the jury will convict on a lesser charge and the defendant still gets an extremely steep punishment.  If there was no crime committed or the law is unjust, then you should acquit on everything.  You shouldn’t punish someone for the supposed crimes of obstruction of justice, money laundering, or a number of other things if the main crime wasn’t committed or never was a crime.

I have written about jury nullification before.  It is actually a great example where changing the opinions of your fellow Americans can change laws and reduce the size and scope of government, all without having to elect the “right” guy into office.  If people stop convicting for tax evasion, then tax collection becomes almost impossible in some cases.  If people stop convicting for drug use, then drug laws will become meaningless.  The same could be said for any victimless crime.

It would have been interesting to see what would have happened had Bradley Manning had a real trial with a jury.  If it had been a jury of 12, then I think it is likely that at least one person would have refused to convict.  That is at least what I hope.

If you want a good litmus test of whether someone is more of a statist or more of a libertarian, ask them what they think of Bradley Manning and Edward Snowden.  If the person thinks they are traitors, then the person is someone who worships the state.  If the person considers them heroes, then that person has at least a libertarian streak in them.  If the person doesn’t know who they are or simply doesn’t care, then the person isn’t a libertarian, but is probably less prone to evil than the person who wants to execute Manning and Snowden.

While this is not a perfect litmus test for someone’s liberty credentials, it is the closest thing I can find in discovering someone’s general belief about the state in one question.

I hope that one day there is a president who is decent enough to pardon Bradley Manning and let him see some freedom again.

One of my favorite economic articles written by Harry Browne was one that he wrote back in 1992.  He asked the question, “Is America In Trouble for Lack of Manufacturing?”  He pointed out the economic fallacies where people believe that America should be a nation of manufacturing and not a nation of services.

I thought about this article recently when I was reading an article by someone who was discussing productivity.  He alluded that productivity is simply making things.  Like so many people, there is a fallacy that productivity only counts when “stuff” is being made.  In other words, productivity involves making cars, appliances, houses, clothes, etc.  I suppose they would include food too.  For some reason, these same people do not see services as productivity in the same way.

It is not as if I read this one time.  I see this fallacy pop up often.  It really pains me when I see it repeated by someone who claims to be a libertarian or someone with libertarian leanings.  But it is simply wrong to assume that providing services does not count for productivity.

Maybe these same people (I’ll call them service critics) would point out that manufacturing goods is more important because that is meeting our basic human needs, whereas services are more of a luxury.  But even most manufactured goods are not really a necessity.  Food and shelter are a basic necessity for human survival, but there is not much beyond that.  In that view, almost everything is a luxury.

But isn’t a car mechanic just as important as someone who builds a car?  Maybe the “service critics” would still consider the car mechanic to be part of productivity because he is fixing an actual good?

What about teachers?  They are not physically producing anything.  Do they not count for anything?

What about a salesman?  I suppose the “service critics” would say that a salesman is not really producing anything.

The reason we have so many service jobs in our economy today is because that is what consumers are choosing.  I realize that there is a misallocation due to government taxes and regulations and also monetary inflation.  There wouldn’t be so many lawyers if there weren’t so many laws.  There would not be any tax accountants if there were no taxes to be paid.  But given the hand dealt by government, the market responds.

The “service critics” probably don’t like the fact that people like Tiger Woods and Peyton Manning make millions of dollars playing sports.  But this is market demand.  They are providing entertainment for millions of people.  They are also helping to advertise products through their endorsements.

When I use an example to illustrate an economic theme, I will usually use actual goods for the sake of simplicity and understanding.  In an example of comparative advantage, I might start an example about Al who produces 10 apples per hour and Bob who produces 20 bananas per hour.  These are easy concepts for people to understand.  I might even just discuss “widgets”.  But this isn’t to demean services.  It is just for easy illustration purposes.  I could just as easily point out comparative advantage by saying that Tiger Woods should still play golf even if he were the best hamburger flipper in America.

In conclusion, don’t fall into the economic trap of thinking that only making things counts as productivity.  Doctors, massage therapists, real estate agents, accountants, chauffeurs, actors, athletes, musicians, therapists, and any number of professions make us more wealthy, assuming they are in demand by consumers.  While government has misallocated resources on a grand scale, it is not to say that services would not exist in a free market.  And in a highly civilized society, we should have luxury goods and services that make our lives easier.  When less people are needed to manufacture goods, then it frees up resources to do other things that raise our overall standard of living.

I “subscribe” to DownsizeDC.org.  The organization takes positions that coincide with its name.  It seeks to downsize Washington DC.  It seeks to lessen the size, scope, and burden of the federal government.

If you sign up on the website, you will get emails (typically 3 or 4 per week, but not more than one a day) that take on different issues.  The organization has made it easy to promote its campaigns and to also resist pending legislation that it thinks is bad (which is most legislation coming out of Congress).  Once you sign up once, you can just write a short message and it will be sent to all 3 of your “representatives”.  This includes your House member and the 2 Senate members of your state.

One good thing is that if you disagree with its position on something or if you just don’t feel strongly about it, then you simply don’t have to send a message.  You can send messages for the issues you really care about.  While Downsize DC claims to be non-partisan, there is no question that its philosophy is mostly libertarian and attracts mostly libertarians or those leaning libertarian.

The organization has taken a bit of a turn in the last year.  While it still encourages sending emails to Congress, it has also emphasized education to a much greater degree, including appealing to morality and what it calls heuristics.

I have always thought that the educational side of Downsize DC is its best feature.  If half of the 20,000 plus people who get the emails actually read them, then this is actually a bigger influence in itself than sending letters to Congress.  It may seem like preaching to the choir, but the choir often needs preaching to.  I have always said that if all people who call themselves or identify themselves as libertarians actually understood libertarianism to a great degree and could espouse their position to others, then we would have a much more libertarian society.  I can’t stress enough how many times I see libertarians saying that we need to spread the word and get “active”, when they can’t even defend their own positions and oftentimes don’t even know their own positions.

If you look at the right side of my blog on the home page, I have a button for the “Read the Bills Act” coalition.  This is a proposed bill that has been emphasized from nearly the beginning at Downsize DC.

There are actually three big pieces of legislation that Downsize DC has written and proposed.  They are:

• Read the Bills Act
• Write the Laws Act
• One Subject at a Time Act

They may sound a little gimmicky at first, and perhaps they are to a certain extent.  But I really believe that these three bills would really change the course of business in Washington DC and, at the very least, slow down the growth of government to a large degree.  While there are no guarantees that any of these pieces of legislation would “work” or be followed as written, they certainly can’t do any worse for the system than what we already have.

The proposed acts are somewhat self explanatory.  The Read the Bills Act would require, among other things, that legislation be read by any member of Congress voting in favor of it.  The Write the Laws Act would require that Congress write all of the federal laws and not delegate this power to federal agencies.  The One Subject at a Time Act would require that each piece of legislation address only one issue at a time.

I think these would all be important, but what do you think is the most important one?  I have my own opinion.  I think the Read the Bills Act would be the easiest to get passed because it is easy to understand and it is a reasonable request that people can get behind.  But I think that the Write the Laws Act would actually be the most important with the most long-term impact.

I don’t think many Americans understand that so much of the dictates coming from Washington DC are not laws that were directly passed by Congress.  It is usually tens of thousands of bureaucrats and lawyers working for various agencies of the federal government who write the laws because Congress has delegated (unconstitutionally) its power.  You can see this with Obamacare where many rules have not even been established yet.

Most of the regulatory burden we suffer from is a result of this.  There is no way that Congress could pass tens of thousands of pages of legislation every year.  If every new rule coming from the federal government had to go through the formal legislative procedures in Congress, the growth of government would practically come to a halt.

For this reason, I also think that the Write the Laws Act is the one least likely to get passed.  But I am glad that Downsize DC still promotes it because it draws attention to a major problem.  The people you are supposedly electing to Congress are not even the ones who are writing most of the laws.  They are simply delegating their authority and passing the buck.  This is why we have the massive bureaucracy that we have today.  I encourage everyone to check out Downsize DC and support the organization.

For anyone who frequently reads my blog, you probably know that I am a big fan of Harry Browne.  I am a strong advocate of his permanent portfolio investment strategy that he laid out in his book Fail-Safe Investing.

For today’s post, I am simply pointing out a piece that was adapted from his book Fail-Safe Investing.  It is called “The 16 Golden Rules of Financial Safety“.

Like most of the advice that Harry Browne offered, I think these 16 rules are great to follow, or at least to consider when making financial decisions.

The only thing I would like to add to his commentary is on rule #7, which says “don’t use leverage”.  I am an advocate of investment residential real estate if you are in the right situation.  In this particular case, I think it is acceptable to use some leverage, if used wisely.  For this rule though, I believe Harry Browne was suggesting that you not borrow money for investing in things like stocks or bonds, or even gold.

Enjoy the reading and I hope it helps you in your financial decisions.

There was an article on Yahoo! Finance about Mr. Money Mustache.  If you haven’t heard of him, he is known for having been able to retire at the age of 30.  In the article, it says he had amassed $800,000 in cash and investments by the age of 30.  Mr. Money Mustache now runs a popular blog by the same name.

I wrote a post about these stories of early retirement, or more accurately, very early retirement.  I find them fascinating.  I think we can learn a lot from these stories.  In the case of Mr. Money Mustache, he says he saved about 70% of his income.  I’m not sure if this was after-tax income or not.  I’m also not sure how much he earned, but I’m guessing it was well above average.  It is easy to save 70% of your after-tax income if you are earning a few hundred thousand dollars per year.  I am not saying he was making this much in his 20’s, but I think he was definitely doing better than average.

While his focus is on savings, or perhaps lack of spending, we should consider the investment side.  I think we can learn the most from him and others when it comes to their savings habits.  But, it is important to realize that Mr. Money Mustache must have earned very good returns on his investments to amass this much money in such a short time period.

It is no coincidence that Mr. Money Mustache accumulated his savings and investments during a boom time.  He is 38 now.  He would have been 30 in 2005.  So if he invested in stocks in the 90’s and real estate at the turn of the century, then his timing was pretty good.  It is not like somebody who is 30 now and started investing in 2006 at the peak of the housing boom and just before the stock market tanked.

I have read studies showing that timing does matter.  Bill Gates and Steve Jobs got started in the 1970’s, just before the boom of the 80’s.  While I’m sure these two would have been successful regardless, they may not have ended up billionaires if they had been born during a different time period.

I’m not saying that you should use this as an excuse to not save and not be successful.  I am saying that things are probably more difficult right now.  For a young adult in their early 20’s right now, it would be almost impossible to accumulate $800,000 by the age of 30, unless the person is a great entrepreneur or very lucky.  The average person will not come anywhere close to this amount of money, even following the frugality advice of Mr. Money Mustache.  Someone right out of college is lucky to find a decent paying job.

But again, this shouldn’t be a reason to find excuses.  Someone starting out with almost nothing in their bank account can still have goals and attempt to live frugally.  Maybe someone who is 22 years old can’t get $800,000 by the age of 30, but maybe he can get to $200,000 by the age of 30.  You can set realistic goals for yourself and you can do this at any age.

In conclusion, I think it would be almost impossible to imitate Mr. Money Mustache today.  Life is simply too expensive.  But you should still read his commentary and take his advice where it can help you.  In order to become wealthy, you have to spend less than you earn.  There is no escaping that bit of math.

I recently wrote a post comparing Detroit with Washington DC.  I said that many people make a mistake in assuming there are absolutely no limits to the Fed and its ability to create money.  In reality, there is a limit and that is hyperinflation.  I have also written several times in the past that I think the Fed is likely to stop short of hyperinflation, as the Fed members would simply be ruining themselves and their control over the economy.

In response to my post, I received the following comment:

“Hyperinflation is not something that central banks or governments decide to do.  It is a market response to excessive debt and deficit and a central bank monetizing government debt.”

First, definitions are important.  I like to distinguish between monetary inflation and price inflation.  This comment is assuming that hyperinflation is simply referring to prices, which is fine, but I just want it to be clear.  Inflation can be defined as an increase in the money supply.  The definition of inflation was changed to mean rising prices, which is actually a result of inflation.  This definition change was implemented by the establishment so that monetary policy would not be strictly to blame for rising prices.

But let’s assume the comment is referring to prices.  The comment says that “hyperinflation is not something that central banks or governments decide to do.”  While it is technically consumers and market participants who bid up prices, it really is the central bank or government deciding it by creating massive amounts of money out of thin air.  The market is simply reacting to the situation that has been dealt.

The second sentence says that “it is a market response to excess debt and deficit(s) and a central bank monetizing government debt.”  The second sentence is just about contradicting the first.  Let’s just shorten and simplify the two sentences and we have the following: “Hyperinflation is not something that central banks decide to do.  It is a market response to a central bank monetizing government debt.” This is correct on a technicality at most.  It is obviously the central bank’s monetizing of debt that is causing the rising prices.  Therefore, the Fed or any other central bank can typically stop hyperinflation simply by ceasing to monetize more debt.

As I have written in the past, it is technically possible to have hyperinflation (in regards to runaway prices) without having a massive increase in the money supply.  Velocity could pick up just based on the expectations that there would be massive monetary inflation in the future.  It is even technically possible for a currency to lose most or all of its value simply based on the mood of the market.  If everyone in America read some literature on fiat currencies and gold and turned into libertarians overnight, it is possible that everyone could simply turn away from the dollar and start using gold and silver or some other medium of exchange.  But the likelihood of this happening without massive monetary inflation is extremely remote.

I have never heard of a hyperinflation situation where the central bank or government was not creating massive amounts of new money out of thin air.  So to say that hyperinflation is not something central banks and governments decide to do is extremely misleading at best.  The Fed, or any other central bank, can decide to stop monetizing debt and buying assets.  It can completely stop its monetary inflation.  This would be a decision to avoid hyperinflation.

One last thing I would like to point out is that the national debt and deficit do not cause hyperinflation.  There is a correlation because the debt will often grow more when more debt is monetized.  Or perhaps it could be said the other way around that there will be more monetization with the growth of debt.  But just because the debt is over $16 trillion, it doesn’t mean that the Fed has to keep buying debt.  It can stop inflating and tell Congress to figure it out.  Congress would be forced to scale back its spending.  So while high debts and deficits may be a predictor of hyperinflation to a certain extent, it is not a direct cause.  It is still the decision of the central bank to monetize more debt.

In conclusion, I think it is important to know that both the supply and the demand of money will affect prices.  But if the Fed does not want a situation of hyperinflation, it can avoid this simply by stopping its monetary inflation.  There may be some point of no return, but I highly doubt we are close to that point yet.  The Fed could simply stop its policy of monetary inflation right now and we will likely avoid hyperinflation.

It seems as if there is a headline almost every day about some government agency or some politician being caught in a corruption scandal or being accused of some kind of wrongdoing.  The almost inevitable response is for people to call for an investigation.  They will call for the wrongdoers to be brought to justice.  And those are just the ones who care.  Most Americans will go about their daily lives and not get upset about any of it, if they even know about it.

Edward Snowden blew the whistle on the NSA and its program to track and spy on all Americans.  There is the IRS scandal, where certain groups and individuals were targeted by the IRS.  The latest one here is from Christine O’Donnell, who perhaps had her Senate election chances sabotaged from a phony IRS investigation.  For this topic, we can even bring in conspiracy theories, such as the downing of TWA Flight 800, where some of the former investigators are asking that the case be reopened.

There is a problem with all of this.  You don’t ask the wrongdoers to investigate themselves.  All of these things involve the abuse of power and criminal acts, or potential criminal acts by the federal government.  So why would you ask the same agency who is committing the criminal act and also doing the cover-up to investigate the situation?  It reminds me of the Kennedy assassination where Allen Dulles gets on the Warren Commission to investigate the death of the man who fired him.

There is a saying that if you can get people asking the wrong question, then you don’t have to worry about the answer.  I suppose this could be modified to say that if you get the right people to investigate a crime, you don’t have to worry about what will turn up.

Do you really think that the federal government is going to find itself guilty of something, even if some of the individuals doing the so-called investigating are different?  Do you really think the Justice Department or the Attorney General are going to do a proper investigation?  These are the people who are the criminals.  It would have been like the German people asking Hitler to investigate rumors that there were concentration camps.

The only solution to stopping, or at least minimizing, corruption and wrongdoing is by taking away the power in the first place.  If the budget for the NSA were a fraction of the size, it would not be able to monitor and store all of the data of tens of millions of Americans.  Better yet, if there were no NSA, there is no way the NSA could spy on Americans.  The same goes for the IRS.  If there were no income tax and no IRS, then there would be no abuse of power and wrongdoing inside the IRS, because it wouldn’t exist.

There is a direct correlation between the size and scope of government and the amount of corruption and criminality that takes place.  This is especially true with a government that is not a direct dictatorship.  When there is significant power, it is going to be abused.

So people can call for all of the internal investigations until they are blue in the face, but it won’t matter.  Perhaps some low-level guy will take the blame and be punished.  But the only way that politicians and bureaucrats will behave is if they simply don’t have the power to do bad things.  This means that they should have limited or no power in the first place.

If people want to spread democracy overseas, and have government-run retirement programs, and have government-funded education, and have the government tell us what we can put in our mouths and bodies, then there is going to be major corruption and wrongdoing.  When you give them the power to do good, they will surely use that power to do bad.

In conclusion, calling for the government to do investigations on itself is completely naive.  The only solution in stopping government criminality is to dramatically reduce the size of government and its power.  If there is no budget, there won’t be much wrongdoing.  The only way this will happen is if people withdraw their consent and decide to take responsibility for their own lives.

With Detroit having officially declared bankruptcy, the inevitable comparisons have started being discussed with Washington DC and the poor fiscal situation of the U.S. federal government.  For this post, I am going to offer what I think are similarities and differences between the two situations.

First, some people are saying that Detroit filed for bankruptcy because it was put in the hands of a single manager who made the decision.  But I think bankruptcy was inevitable.  For me, things always seem to play out longer than I would think possible, and this was another one of those situations.  Detroit has been a fiscal mess (along with being a mess in general) for many years now.  There was simply no possible way to fulfill all of the promises that were made by previous politicians.

Next, it is important to realize right off the bat the major difference between Detroit and Washington DC.  The federal government has a monopoly over the money supply.  There is a central bank (the Federal Reserve), which can create money out of thin air at any time.  The government in the city of Detroit obviously has no capability to create money.  It only has the ability to tax and that was not working much because most people with money were getting out of Detroit.  I also saw a statistic that almost half of the property owners in Detroit were delinquent in paying their property taxes.  Who can blame them?

It is often said that the Fed can print money out of thin air.  In today’s world, it is actually more accurate to say that the Fed can create digital money out of thin air.  Most of the new money supply is not in the form of currency, but in the form of digits in bank accounts.  Regardless, it is still essentially the same thing with the same bad consequences.

There is a mistake that is made by some, including many libertarians, that assumes that there are absolutely no limits to the Fed and its ability to create money.  But in reality, there actually is a limit to their effectiveness.  The limit is hyperinflation.  There might also be a limit in the sense of what the American people are willing to put up with.  If the velocity of money picks up (money demand weakens) and price inflation starts to pick up significantly, the Fed will eventually be forced to stop its monetary inflation, or at least cut back significantly.  I don’t think the Fed is going to risk hyperinflation, as it would simply ruin itself and all of its credibility.

It is also important to consider that hyperinflation would not really solve the problems of the massive unfunded liabilities.  Medicare is the biggest one.  Social Security is another big one.  If the Fed simply tries to pay off the unfunded liabilities through massive inflation or hyperinflation, it won’t work because the cost of living will also go up, along with medical expenses.  If the government pays doctors for Medicare services at today’s prices while the cost of living goes up 5 times what it is now, then doctors will simply stop treating Medicare patients.

Regardless of what the federal government does at this point, there is going to be a default of some kind.  The Fed simply cannot just keep creating new money out of thin air like crazy without Americans suffering major consequences.  You can only kick the can down the road for so long, as retired government workers from the city of Detroit have found out.  Washington DC can kick the can down the road a bit further because of the Fed, but there are still limitations.

I think another major difference between Detroit and DC is that we are not going to see a full default announced in one day from the federal government as we just saw with Detroit.  It is going to be a series of mini defaults, group by group.  We have already seen the so-called sequestration.  We will start to see means testing with Social Security and Medicare.  We will see reduced pensions for government employees.  We will see a rise in the official retirement age to collect Social Security and Medicare.  Even this will probably come in steps.  Special interests will be cut, one by one.  There will be a lot of wailing and complaining, but there is simply nothing that can be done about it short of hyperinflation, which would still not really solve anything.  The politicians, since at least the days of FDR, have simply made more promises than can be kept.

In conclusion, I think it is fair to make comparisons between Detroit and Washington DC.  But the bankruptcy in DC is going to be a lot slower and drawn out.  It is going to happen in a series of steps in a more informal way.  But just like the pensioners in Detroit, the American people are not going to know what hit them.

The cost of government regulations on our society is enormous.  In the U.S., I have seen estimates of up to $1.8 trillion per year, and that is just for federal regulations.  These could easily add up to $15,000 per family living in America, the land of the free.

Just because it is mainly businesses that directly incur these costs, it doesn’t mean that we all don’t pay for them.  Every cost to business flows down to the individual level in some way.  A business is not some magical entity that has unlimited resources to spend.  When a business incurs an additional cost, it flows down to somebody, whether that is the business owner, a reduction in the stock price, a reduction in employee wages, or higher prices for consumers.  Sometimes it simply means that a product is not brought to the market that otherwise would have.

The sad thing is that most of these regulations are put in place by bureaucrats and lobbyists who are trying to stifle competition or individually profit.  Most of these regulations do not help employees or consumers as a whole.  In fact, like most things that the government does, regulations often have the opposite effect of their supposedly intended purpose.

You could have a food safety regulation imposed by the government.  But this can be a moral hazard.  It might make the objectives of the business to comply with the government safety regulations instead of doing their own testing.  It might make consumers less apt to do research to verify the safety of the food they are eating.  It might make independent regulators outside of the government less likely to “audit” the food under government regulation.

There can be many other unintended consequences.  Think of a business having to comply with rules providing handicap parking.  How many times do you drive through a parking lot and see many unused handicap spots near the front of the store?  While it is easy for someone to say that people should walk further and exercise, they don’t know everyone’s situation.  Perhaps someone has an injured leg but doesn’t have a handicap pass.  Perhaps there is a bad thunderstorm outside.  Many people make the wrong assumption that businesses would not provide such services if not for government regulations.

I think of government regulations much the same way I think of war and foreign aid, at least in terms of the cost.  (Obviously war is far more serious aside from the economics.)  These are easy cuts for the government to make our lives easier and increase our standard of living.  If the government stopped all wars and ended all foreign aid, it would be easy savings.  The federal government would be closer to balancing the budget without raising any taxes.

I see government regulations the same way.  I can only see benefits from reducing regulations.  Perhaps there would be a few lobbyists and bureaucrats who would be hurt by it.  Perhaps there would be some big businesses hurt by it by having to compete more.  But overall, dramatically reducing regulations would be a huge benefit to society, especially once the realignment of resources has taken place.  It would significantly help most businesses and would help to raise wages, raise production, and lower consumer prices.

There are some government programs that would be far more difficult to cut.  If Social Security payments were reduced, it would benefit some people, particularly those who are young and working.  On the other hand, it would be difficult for older people, especially those who are highly dependent on Social Security.

So why not make the easy cuts first?  Stopping war and empire building and ending foreign aid are “easy” reductions that would mostly only hurt the elitists in government or those connected to the government.  The same is true of government regulations.  Eliminating half of the regulations coming from the federal government alone would be a huge benefit to the economy and our standard of living.  The only thing that has to happen is for Americans to demand it.  The government is not going to do it on its own.

There are some libertarians, survivalists, and others who advocate avoiding the banking system.  It is usually for philosophical and principled reasons.  Even some on the left, such as the Occupy Wall Street crowd, would agree with some of the reasoning.  There is no question that the major banks are essentially an oligarchy, deriving benefits from the government and the Federal Reserve.  The big bankers really do get rich at the expense of the poor and middle class.

It is almost impossible to get by in America today without having a bank account, unless you plan to live in virtual poverty.  Almost everything is done electronically today.  If you have any kind of a normal job, you are probably highly encouraged to use direct deposit.  Even if you get a check on payday, you still have to use a bank to get the money.

There are some who advocate being “underbanked”.  This means that you just keep a small balance in a checking account and that is it.  It means that you keep just enough to pay your bills and regular expenses.

While I sympathize with the notion and I oppose the current banking system being so entrenched with the government, I don’t advocate that you make your own life miserable and vulnerable to make a statement.  By avoiding the banking system, you are really making things tough on yourself and putting yourself in a position of making yourself poorer.

While I don’t think the FDIC should have ever been invented and I don’t believe in any kind of government insurance (especially deposit insurance), it is the system we have in place today.  It means that bank runs are unlikely, at least in the conventional sense.  If there is a bank run, which would really be other financial institutions and companies refusing to loan short-term money, then the FDIC will cover deposits under $250,000 (the current amount since 2008).  If the FDIC doesn’t have the money, then it will receive money from the government or the Fed.  Or perhaps the Fed will simply nationalize the bank.

I think the government would allow a partial default on Social Security checks before it let the banking system fail.  That is the number one purpose of the Federal Reserve.  If the banking system goes, then the whole system goes.

For this reason, you shouldn’t worry too much about having money in a checking or savings account.  Your biggest worry is inflation eating away your purchasing power over time.  There will not be a Cyprus like event where money is directly confiscated.  The Fed does this in a much more subtle fashion.

As long as you stay under the $250,000 threshold at any one bank, then I doubt you have anything to worry about, except for the depreciating value of your money.  While it is a personal decision, I don’t recommend that you stress yourself out with being “unbanked” or “underbanked”.  You will probably not make a difference to the system, while just making life hard on yourself.  And if you don’t use any financial institutions, then you are setting yourself up for trouble by having all of your assets vulnerable to theft, fire, or something else.

I think it is best to diversify your assets.  This would include having some cash (digits) in the bank.  If the banks have to be bailed out (which they currently are), then you are paying for it regardless of whether you have a bank account or not.