There are many harmful aspects of monetary inflation.  The obvious (although not to all) effect is that prices rise.  In other words, over the long term, monetary inflation leads to price inflation.

Monetary inflation is a redistribution of wealth.  It benefits debtors at the expense of creditors.  It benefits those holding hard assets (at least during the artificial boom stage).  It hurts consumers.  It tends to hurt wage earners, except those in industries who see the money first.  It hurts savers.

As taught by the Austrian Business Cycle Theory (ABCT), monetary inflation leads to a boom and bust cycle.  The loose money, and typically artificially low interest rates, leads to massive distortions.  It makes certain things appear more profitable than they really are.  It sends false signals to the marketplace, making it appear that there is more savings and capital than what really exists.

In relation to this last point, inflation misallocates resources.  It directs resources towards things that would not otherwise be done.  So while inflation redistributes wealth, it also reduces the overall wealth.  The net effect is that it makes the average person poorer, or at least worse off than he would have been without the monetary inflation.  Inflation harms productivity.

Inflation is also what allows the federal government to spend such massive amounts of money.  Without the Fed buying government debt, there is no way that the government could spend such vast amounts.  The marketplace probably wouldn’t buy the government debt without demanding higher interest rates.  And vastly higher taxes would be unlikely.  Therefore, without inflation from the central bank, government spending would be much lower.  Since almost all government spending is a misallocation or resources, monetary inflation enables much higher government spending.

Of course, we also wouldn’t have the massive national debt without the ability of the Fed to create new money out of thin air.  While I don’t think the overall debt is the most important thing, it correlates to the massive spending that makes our standard of living far lower than it should be.

This is important to remember, because even if you make some good financial decisions and investments, and seem to benefit from inflation, it is still making your worse off.  It is just that you will be less worse off than those who did not prepare properly and trusted their government with a monopoly over the money they use.

I have already given my investment recommendations for 2013.  The most important piece is the permanent portfolio.  I have not advocated defense stocks recently, except a small portion that would be part of the stocks held in the permanent portfolio (probably in an index fund or ETF of the broad market).

If you are going to put money into defense stocks, it should be in your speculative portion.  It should also be a small amount.

While I wouldn’t bet against defense stocks right now, I also think there are better things to speculate on.  If you look at Fidelity’s Select Defense & Aerospace fund (FSDAX), the returns have not been that great.  If you take its high point in 2007, the price of the fund is actually less now.

There is no question that if you had money to invest in the year 2000, that putting it in defense stocks would have given you a much better return that the overall stock market.  Of course, you would have been much better off in oil stocks or simply buying gold.

Going forward, it would not surprise me to see defense stocks continuing to struggle.  Raw materials to build defense equipment could rise in price and cut into profits.  And while war rages on, I think that Congress will have to find ways to cut back.  While there is a strong defense lobby, it is also easier to cut than Medicare and Social Security.  There is a lot of money coming from the defense lobbyists, but not nearly as many votes.

Of course, the word “defense” should be put in quotes most of the time.  Much of the expenditures for the military and equipment have little to do with defense.  It is mostly to build the American empire with more wars and more occupation, but I digress.

While I don’t expect to see major cuts in government spending right now, I do know that things are getting tighter.  Congress is going to have to start looking for ways to make cuts.  The Federal Reserve can’t support a one trillion dollar (or more) deficit year after year.  It eventually has to stop, which will force spending cuts.  Cutting the so-called defense budget will be easier than cutting the so-called entitlement programs.  For this reason, I would not bet many chips on defense stocks now.

It was recently announced that the U.S. Post Office will stop its delivery of mail on Saturdays, starting in August of 2013.  This was done in order to save approximately $2 billion per year.  The problem is that the losses were $15.9 billion last year, according to this New York Times article.  So, once the Saturday delivery service is cut, the losses will be slightly less, but still huge.

I love to read about new technology in our world and try to figure out its potential impacts.  Most technological advances end up being a net positive for liberty.  While some new technologies are used against us by the government, I think the overall trend is that they are more often beneficial.

I frequently use the example of email and cell phones.  New technology, coupled with delivery companies like Fed Ex and UPS, has made the Post Office far less relevant.  But most people respond that while this is true, the Post Office is still in existence.

But this canceling of Saturday delivery is a crack in the door.  This is just a start.  These continued losses by the Post Office are not sustainable, because eventually people will realize that there is no point on continuing to run a losing organization, with taxpayer money, when the service isn’t that valuable.

Ironically, the Post Office is one of the few things the federal government does that is actually constitutional.  Yet, even this is a disaster and should not be a function of government.  It is also important to note that just because postal service is an enumerated power in the Constitution, it doesn’t mean that Congress has to do it or fund it.  In addition, the Post Office doesn’t have to have a monopoly on the delivery of first-class mail.  Let’s open it up for competition.

I think this is the beginning of the end of the Post Office and its government monopoly over first-class mail.  Perhaps it will take another 10 or 20 years to end the whole thing, but I do believe it is inevitable.  I guess this will prove Reagan’s saying wrong that government programs never disappear.

I expect this to happen with other government programs.  Technology makes them irrelevant over time. One of the worst government programs is education, and it is slowly being undermined by technology. Just like the Post Office, we haven’t seen any cuts in spending on government education, but it will happen eventually.  People will realize that their child can get just as good of an education (or probably better) by sitting at a computer for most of the day.  There is no need for taxpayers to shell out, in many instances, well over $10,000 per year per child.

Libertarians should welcome the news of the Post Office canceling Saturday deliveries.  It means that government programs can be scaled down.  Eventually, we should see an end to the Post Office, or at least the one run by the government.  This is positive news for those who favor liberty.

According to a Fox News poll, 73 percent of American voters polled believe that cutting government spending would be more likely to help strengthen the economy, whereas just 15 percent believe that increasing spending would help the economy.

Of course, this is part of the contradictory American mindset.  How many of these same people who believe government spending should be cut, also voted to re-elect their so-called representative to Congress?

Overall though, I think this is very positive news.  Even if the poll is off a little, it is clear that a good majority of Americans understand economics enough (better than Nobel-prize winner Paul Krugman) that they realize government spending should be cut.

While Keynesianism is defined a little differently depending on who you ask, this question really does go to the heart of Keynesianism.  Keynesians believe that increased government spending, particularly during tough economic times, is needed to help the economy.  A majority of Americans are no longer buying it.

The government used John Maynard Keynes and his famous book as a justification for its policies.  If Keynes had never existed, then the government would have used someone else.  Keynesianism would be called something else, but the policies would likely be the same.

Although a clear majority of Americans are in favor of reduced government spending, it doesn’t mean it will happen.  Many of these people understand it intuitively, but are still not educated to a great enough degree.  They are not as hardcore in their beliefs as they need to be.  They also don’t pay attention to what Congress is doing on a regular basis.  In addition, there are also many Americans who say they want lower spending, but don’t like the idea once it is targeted towards a certain program that they favor.

So while this doesn’t mean a whole lot for the short term, at least in terms of policy, I do think it is significant.  It shows a shift in the American mindset.  People are gradually changing their views.

I think the main reasons for this shifting attitude include the bad economy, Ron Paul, and the internet.  The synergistic effect between these things are changing minds.

This poll is a reason to be optimistic.  If 73 percent of American voters really do have this view, then it will eventually have its effects on policy.  Perhaps it means we have hope for reducing government spending without having to go through a serious economic crisis first.

I recently saw an advertisement for a 55-inch LED television for about $800.  I got a 55-inch about 2 years ago for $1,000 and I thought it was a pretty good deal at the time.  My television is a better name brand, but it is also not LED.  In just 2 short years, prices have come down significantly, while the quality has gone up.  This is price deflation, in spite of monetary inflation.  It is the best kind of price deflation.  It is due to increased technology and productivity.

Gary North recently wrote an article on how our lives are improving.  I like the optimism.  I am pessimistic on several fronts, particularly regarding the overall economic picture in the short term.  This is because of bad government policy.  It is because of too much government spending and regulation.  Despite these massive barriers, the free market continues to find holes in which to innovate.  Technology in electronics has been able to improve dramatically, in spite of big government.

It is really a strange world we live in today.  In some ways, our lives become more difficult.  Health insurance and medical care get more expensive.  Education gets more expensive, at least when dealing with government education and the other institutions that try to compete.  Education in regards to self-learning is vastly cheaper, mostly because of the internet.

So while some of the necessities and other high priority things become more expensive, other things, mostly in electronics, get better and better, and cheaper and cheaper.

There is now a high quality 152-inch television hitting the market for $500,000.  This will be for really wealthy people, at least at the start.  But that is the way most things start out.  You could have said the same thing about cars about a hundred years ago.  But then someone like Henry Ford came along and mass produced them for the general population.

A 55-inch television was not a common thing for middle class America, even just 10 years ago.  Now it is a common thing and the quality is far better.  In terms of televisions and computers and cell phones, our lives are dramatically better than they were just 10 years ago.

I was recently at a park with my kids and we walked to a nearby lake.  My 5 year old daughter asked me if there were any alligators in the lake.  I said that there could be, but that I didn’t know.  Then she said to me, “look on your phone.”  She thinks I can find all of the answers in life on my cell phone.  While my phone couldn’t tell me if there were any alligators in the lake (is there an app for that?), it is remarkable how much information we have at our fingertips today.

Long term, I am an optimist.  In spite of big government, I think our lives will continue to get better in many ways, even if we take steps back sometimes.  We often don’t notice how much better off we are until we look back and realize the things we didn’t have.

While government has not been able to stop advancing technology, I think technology will be able to beat back big government.  Think about what email and cell phones are doing to the Post Office.  That is our future.

The issue of drones is actually getting some attention.  This New York Times article was the headline story on Drudge Report.  While I am glad that it is getting some attention, I still think most of the discussion is on the wrong track.

In the New York Times story, it talks about drone bombings in Yemen.  Of course, they are also happening in Afghanistan, Pakistan, and probably many other countries.  The article does discuss the possibility that these drone attacks are fueling hatred towards America.  People, who have loved ones die at the hands of American bombs, tend to want to get revenge.  This is known as blowback, something that Rudy Giuliani had never heard before.

I think there is a bigger picture that is missing in this whole thing.  Whether we are talking about drone bombings, torture, or just war in general, we have to look at the morality of the whole thing.  When you kill an innocent person with deliberate actions, we usually call that “murder” in our society.  Does it make it any less wrong if it is done through the government?

It doesn’t matter if terrorist operatives are being killed.  It doesn’t matter whether there is blowback or not.  It doesn’t matter if people in a foreign country don’t like us or don’t act the way we want.  None of this matters when it comes to killing innocent people.  Dropping bombs, knowing that innocent people will die, is immoral.  It is wrong, no matter how you try to justify it.

Even if the bombs are killing “suspected terrorists”, it is still wrong.  The key word is “suspected”.  None of these people are given a trial.  None of these people are allowed to explain their side of the story.  None of these people are allowed to identify themselves.  Instead, their lives are just snuffed out, at the commands of U.S. politicians and U.S. military officers.  It is murder.

I also get frustrated when I hear about how the government can now arrest Americans or that Americans are now part of a kill list.  I hear that Americans have the right to a trial under the Constitution.  But this is a complete misrepresentation of the Constitution, which is supposed to enumerate the powers of the federal government.  I don’t see where the Constitution authorizes the federal government to kill innocent people, especially when there aren’t even any declared wars right now.

But regardless of what the Constitution authorizes, it is just plain wrong to murder innocent people.  It doesn’t matter where they were born.  Murdering an innocent person born in Pakistan is no more justified than murdering an innocent American.

I think a good way to look at this whole thing is to imagine it being done in America.  Imagine that a criminal runs into a building.  Do you think the police or military should drop a bomb on the building and celebrate because we got the bad guy?  Or do you think it would be wrong because of the “collateral damage”?

It is ironic that Obama got in front of the cameras and shed some fake tears for the children who were murdered in a Connecticut elementary school.  I have never seen him shed a tear for any of the children that died at the hands of his drone bombings.  It is also ironic that Obama is talking about gun control.  Instead of banning certain guns from the American people, I think we need to ban Obama and the rest of the politicians from drones and other weapons of mass destruction.

I am a big advocate of investing at least half of your money in a permanent portfolio (or something similar), as described by Harry Browne in his book Fail-Safe Investing .  I gave my recommended investment overview for 2013.

For the more speculative portion of your investments, I am not against the idea of investing in oil and energy in general.  I don’t really recommend futures or options, unless you really know what you are doing.  Even then, I would stay away from futures and do only options that have a long time frame with money you are willing to lose.

I think the best bet is to buy oil and energy stocks.  Most of my investment advice does not revolve around individual stocks though.  If you want to buy individual stocks, I would stick with big companies like BHP Billiton (symbol: BHP).  Even with that, I would spread my eggs around and buy a few different companies.

I think an easier and perhaps less risky way to play it is by buying a mutual fund.  Fidelity offers its Fidelity Select Energy Service fund.  The symbol is FSESX.  While it is not a pure oil play, it does encompass the energy sector, which certainly includes oil to a large degree.  While your returns may not be quite as high with a mutual fund, it also takes some risk out of it by not being in any one particular company.

The direction of energy stocks is probably going to depend on the overall economy.  If we go into a deep recession, then energy stocks will do poorly.  If we see an artificial boom caused by the Fed’s loose monetary policies, then energy stocks will likely do quite well.

Even if you are a big gambler, I wouldn’t put more than 10% of your investments into the energy sector (aside from the small portion that may be in index funds in your permanent portfolio).  For most people, I would keep it at under 5%.

There are a lot of reasons that energy stocks could do well in the near future.  Aside from the depreciating dollar, there is constant chaos going on in the Middle East and other oil producing countries.  If any kind of a significant war were to break out, then oil could go up in price very quickly.

With that said, just remember the risk.  The economy is showing a lot of weakness and we still haven’t seen big price inflation yet, despite the big monetary inflation coming out of the Fed.  So for now, concentrate more on wealth preservation than hitting a home run with your investments.

The paleo and primal diets have become quite popular.  There is a big overlap with libertarians.  I suppose that libertarians would be attracted to the paleo diet because it is somewhat contrarian and goes against the establishment line on diet.

As Gary North has said, I think the paleo diet is not properly named.  I can understand the name and the appeal, but it really isn’t that accurate.  The paleo diet consists of eating natural foods like meat, seafood, vegetables, eggs, and fruit and nuts to a lesser extent.  You can eat saturated fats.  Most people can eat as much as they want, as long as they stick to the menu.  You aren’t going to get fat by eating another plate of vegetables.

This is not really a caveman diet because cavemen were lucky to find any food.  Thousands of years ago, it was a struggle just to put food on the table (or whatever they ate on).  There was no refrigeration, unless it was really cold outside (and then you had other problems).  There certainly was no grocery store.  For this reason, I don’t think bread was a bad thing.  Give me a choice between eating bread and starving, and I will choose the bread.

But if you live in a half-decent country today, then food is mostly abundant.  You can basically eat all of the meat and vegetables that you want, assuming a modest income from somewhere.

My diet right now is mostly paleo-primal.  It is more for health reasons than weight reasons.  Perhaps I will tell my story at some point in the future.

Interestingly, Panera Bread now has a hidden menu that you can order from.  While it is still fairly limited, it is basically a paleo menu.  I had the Mediterranean chicken salad there recently and it was quite good.  Karen DeCoster recently pointed out this hidden menu on the LewRockwell.com blog.

When I tell people about the hidden menu, they wonder why it is hidden.  I have given this some thought and I can only speculate.  Panera Bread has a niche of bread and pastries.  This stands for everything that is opposite to the paleo diet.  I don’t think they want to advertise the paleo diet, as it would be advertising against their very brand.

On the other hand, it makes sense that Panera Bread would offer paleo meals.  It is like McDonald’s offering salads.  They understand that not all individuals in a family are the same.  Sometimes the family wants to go to a particular place, but it makes it hard if one person in the family is trying to eat healthy, or just a particular way.  It is providing options.  It shows that the paleo diet is becoming more popular.

I don’t think the paleo diet is just another fad.  I’m sure people will take it and tweak it, but I think the general basis of it will stay around.  Americans have an epidemic of different diseases and a huge factor in that is diet.  When more Americans start eating paleo, or at least cutting back severely on high carb foods and processed foods, then we will see a decline in auto immune diseases, psychological disorders, and other health problems.

I celebrate Panera’s hidden menu.  It simply means that they are responding to market demand.  I look forward to more restaurants doing the same.

We see great looking celebrities in magazines and on television, and many people want to be like them.  Not only do people want to look like a supermodel, but they also want the lifestyle of the rich and famous.  I can understand the rich part, but not so much the famous part.

We also see successful (at least as defined by money) investors and entrepreneurs.  Many people aspire to be like them.  Again, I can understand wanting to be rich, especially if it is for the right reasons.  Having wealth means that you have a certain element of freedom that most others don’t enjoy.  It allows you the opportunity to focus on what is most important to you, whether it be spending time with family, pursuing your calling in life, relaxing, or any combination of these and other things.

It is important to give yourself a reality check though.  There is certainly nothing wrong with aspiring to be rich, but the chances of becoming extremely wealthy are almost zero.  You are almost definitely not going to be one of the rare billionaires in this world.  You are probably not going to be a decamillionaire (assuming no mass inflation).  You can become a millionaire with some realistic expectations.

It is not a good idea to look at someone like Donald Trump or Bill Gates or Warren Buffett, at least not in people to copy.  Most really wealthy people had a combination of things going for them.  Many started with money in the family in the first place.  Many were in the right business at the right time.  Many took huge risks.  Almost everyone had a combination of good timing, good luck, and taking an opportunity when it presented itself.  And, of course, there are some people who just have a unique skill, like singers and athletes.

You can only control what you can control.  It is true that you have to make your own good luck, at least in a way.  But this doesn’t mean you should take foolish risks.  For every really wealthy person out there, there are probably another thousand or more who failed miserably.  While there is nothing wrong with failing in starting a business, it isn’t good when it takes most of your money away from you, unless you started with almost nothing.

There are a lot of people who take major risks with a lot of money.  You hear mostly about the ones who made it big.  And it doesn’t really matter much whether they made it big through luck or wisdom.  The point is the statistics.  Most people who take major risks with a lot of money, end up losing that money.  There are probably ten thousand restaurant owners who go out of business every year and that is in just one sector.

I think it is better to emulate someone that you can actually realistically follow and expect to achieve some success.  You are not going to be the next Steve Jobs.  But you could be like the guy in your town who bought residential real estate when he was a young adult and now owns 20 houses free and clear and makes $200,000 a year in net profit.  You could be like the guy who was a plumber for 10 years before starting his successful business that brings in over $1,000,000 per year now.  You could even be like the office worker who saved 15% of his income every year and made smart investments and paid down his mortgage.

Most rich people do not have a glamorous story to tell.  They stuck to their knitting.  They made a plan (even if not a great plan, it can always be revised), they took smart risks, they put in a little extra time, they saved some of their income, and they took action.

If you really want to figure out how to be successful in terms of making money, then talk to ten people who are well off and ask them for some secrets.  You might be surprised how many will share their story.  Meanwhile, ignore the celebrities and the super rich.  And if you are going to make a big investment in a startup business, then do most of that investment with your time and very little with your saved money.  You are not going to accumulate wealth by destroying what you already have.

So, it seems a little early to talk about this.  We just finished an election with Obama winning another 4 years.  It shows how pathetic Romney was that he couldn’t beat a sitting president with a struggling economy and high unemployment.  And the Republican nominee couldn’t attack Obama on his most vulnerable issue (Obamacare), because Romney enacted the equivalent in Massachusetts.

While 2016 is far away, it will probably be less than 2 years when we start to hear about exploratory committees and listening tours.  Assuming Obama doesn’t nominate himself to be dictator, we will have several candidates from both major parties.

It doesn’t seem to matter much who is elected president.  Whatever the person says on the campaign trail, usually means nothing once they are in office.  Most of the candidates are vetted thoroughly and they will go along with the establishment, once in office.  If they split with the establishment, then they end up like JFK.

I do think we will see a difference in candidates in 2016, if in rhetoric only.  The Republicans have been putting up Republicans who don’t exactly fit in with the so-called conservative base and it hasn’t worked out too well in the presidential elections.  While I am sure there will be many different types of candidates running for the Republican nomination the next time around, I can actually envision a Tea Party favorite getting the nod.

There are two particular names that stand out to me.  They are Marco Rubio and Rand Paul.

Rubio is a great talker.  He is a lawyer and knows how to come off sounding good.  He is extremely articulate.  When it comes to economic issues, he comes across as favoring free markets and smaller government.  I have no idea if this is an act or not, but we do know what happens when people get into a position of greater power.  Of course, outside of economics, Rubio has been terrible on foreign policy and civil liberty issues.

Rand Paul is also a good talker.  Perhaps he is not quite as suave as Rubio, but still pretty good.  He also appeals to the conservative, small government types.  He is mixed with support from libertarians.  Personally, I could not support him, unless something drastic were to change.  He is too political.  I cannot trust him the way I trust his father.  I don’t know if Rand Paul would be principled enough to stand up for liberty if he were elected president.

I am also afraid of the Reagan syndrome with both Rubio and Paul.  They are good talkers and they sound great to the libertarian when they are talking about smaller government and personal responsibility.  This was Reagan.  But when Reagan was in office he was not good for liberty.  Perhaps he wasn’t as terrible as Obama, but at least Obama has strong opposition from the conservative and libertarian side.  Reagan somehow got a pass.  He was good when it came to lowering marginal income tax rates.  But he also raised other taxes.  And the spending and deficits went up significantly under Reagan.

I could see Paul or Rubio getting into office and the left having a field day.  They would be talking about unrestrained capitalism, while the policies would still be big government.  And who knows what the economy will look like in 4 years.

It seems that Americans have a certain threshold for big government.  After 4 years of Carter, with high inflation, high interest rates, and high unemployment, Americans wanted a smaller government message.  I think after 8 years of Obama, and probably a disastrous economy, Americans will be ready to hear that message again.  I wish it would be someone like Ron Paul, but unfortunately, it is more likely to be someone like Rand Paul or Marco Rubio.