I like to pick on the Republican establishment.  It’s not that I like the Democratic Party establishment or think they are any less evil.  The Democrats lie about being against war and standing up for civil liberties.  But the Republican Party has this reputation of being for smaller government.  While this may be true for some of the Republican voters, it is certainly not true for most of the Republican politicians and the establishment guys.

The Republican voters who truly believe in smaller government who continue to vote for Republican politicians are being duped.  They are suckers.  Most of us go through this.  But it really amazes me when I meet someone who is older and been around for a long time.  It reminds me of the quote attributed to Einstein that the definition of insanity is doing the same thing over and over again and expecting different results.  It is insanity to vote for the typical Republican politician and expect to get smaller government.

There is always an excuse coming from Republicans on why the government doesn’t get smaller.  They will say they need the presidency.  Then when there is a Republican president and government continues to grow, they will say they need the Congress.  Then when they get the Congress and the presidency at the same time, they will say they need a supermajority in the Senate.  It is never enough.

Even if the Republicans had a supermajority in the Senate, a majority in the House, and the presidency, government still wouldn’t get smaller.  Then they would blame it on a few so-called RINOs (Republican In Name Only) who are too moderate.  Then they would say that the Republicans just couldn’t possibly shrink the government or else the media would accuse them of doing all sorts of horrible things.

Well, if this is the case, then what is the point of ever electing a Republican?  It certainly isn’t to shrink government.  It isn’t to get government to stay the same size.  The only legitimate argument that could be made is that it slows down the Democrats.  But this only works when there is a Republican Congress and a Democratic president.  Otherwise, it is a disaster.

As I’ve said before, there are two people in American history who have signed legislation to mandate the purchase of health insurance or else face a penalty.  It just so happens that those two individuals are the two major candidates for president this year.

As the saying goes, if you get them asking the wrong questions, you don’t have to worry about the answers.  The same goes for voting.  If either candidate is acceptable to the establishment, then the establishment doesn’t have to worry about who wins.

Even if Romney wins, the Republicans will continue to make excuses on why government can’t get smaller.

The Republicans have failed miserably.  Just by having a majority in Congress, they could dramatically shrink the federal government.  All expenditures are supposed to be approved by a majority in the House.  The Republicans could propose a dramatically smaller budget and refuse to pass anything bigger.  They could refuse to raise the debt ceiling, which would force automatic cuts that would be immediate and dramatic.

I know, the Republicans can’t do this though, because otherwise the media would make them look bad. Good excuse.  I suppose they will keep making the same excuses as long as the suckers keep voting for them.

In 2002, Ben Bernanke, prior to becoming chairman of the Federal Reserve, gave a speech.  It earned him the nickname of Helicopter Ben.  In one portion of Bernanke’s speech, he had this to say:

“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

Bernanke was exactly correct on this point.  Bernanke has been wrong on a lot of things, but he is being brutally honest in the above quote.

The reason I bring this up is because it astounds me just how many people don’t understand this point.  I realize that Paris Hilton probably doesn’t understand this (although you never know).  I realize that your average high school student doesn’t understand this.  Even the average man on the street doesn’t fully understand this.  But it simply amazes me that there are people who spend many hours studying monetary policy and even people who devote their careers to the subject, and yet don’t understand that the Fed can inflate at any time.

There is a difference between predicting what is likely to happen and what can happen.  For this post, I am not battling against those predicting what is likely to happen.  There are some people who think we are headed for a deflationary depression, and sooner rather than later.  This is their prediction and they have their reasons.  Some of those reasons are valid.

Then there are some people who are also predicting deflation because they say it can’t be stopped.  They say that the Fed is trapped and that it can’t cause any more inflation.

If you ever hear someone say that the Fed can’t inflate, then make sure you don’t take any more words seriously that come out of the person’s mouth.  Whether they are talking about monetary inflation or price inflation, it is simply wrong with today’s central bank and fiat money system.

As Bernanke said, the Fed has a printing press or its electronic equivalent.  It can cause price inflation just by threatening to increase the money supply, if the threat is taken seriously.  The Fed can always create more money out of thin air, which means it can always create positive inflation.  (The word “positive” there should not be taken as “good”.)

The Fed can buy anything it wants at any time.  Its only limits are hyperinflation where they destroy the money, or a rebellion from the people.  Barring those two things, the Fed can always create new money.

The Fed does not even have to buy government debt, although that alone is enough to cause price inflation.  The Fed can buy mortgage securities.  The Fed can buy debt from other governments.  The Fed can buy stocks.  The Fed can buy real estate.  The Fed can buy candy bars if it wants to.

The point is that the Fed can buy anything and when it buys something, it creates money out of thin air to do it.  The Fed can buy a stack of candy bars from a bank (the intermediary) and it will create digits on the bank’s account to show the increase in money.  Digits are even easier to create than paper money.  Someone literally just has to type the numbers on a keyboard.

In conclusion, the Fed can create money out of thin air at any time.  It can do this on a huge scale to force price inflation, even when the demand for money is seemingly high.  Don’t listen to anyone who says that it is impossible for the Fed to create positive inflation.  Helicopter Ben was right on this one.

I try my best to stay up to date with the political scene, the economic scene, and the financial scene.  They are all related.  I read some things that I can barely find anything to agree with.  Most of this comes from the so-called mainstream media.  I also read other libertarian authors.  I learn far more there, even if I find places where I disagree.

One thing I find that is common is that it is hard to get good advice for someone who simply doesn’t have a lot of money.  I will read articles or blogs by libertarian authors (or at least people who have somewhat of an understanding of the free market) and they oftentimes offer some pretty good advice.  The problem is that the advice is geared towards individuals with a high net worth.

I read suggestions about how to prepare for a coming financial armageddon or some other disaster.  I see suggestions like buying a safe property in a foreign country, opening a foreign bank account, or having gold stored overseas.  Again, the problem is that this is geared towards the rich.  You often need substantial minimums to do any of these and this would be after keeping some liquid assets available to you now.

Even buying an investment property in your own area requires some money, although this is far more realistic for many people.

If you have a few million dollars to your name, then you probably should consider some of this advice like buying a property in another country and storing some financial assets elsewhere.  But realistically, this is not the case for most people.  The large majority of people are not millionaires.  The average American probably doesn’t even have a 6 figure net worth, and most of those who do, have it in real estate or retirement accounts.

If you are like most Americans and simply do not have a lot of money to invest, then I encourage you to take baby steps.  Don’t be intimidated and do nothing.  Save money where you can.  Keep some in a savings account for emergencies.  Take a little and buy some precious metals.  If you can save $100 per month, you can buy about 3 one-ounce silver coins right now.  If you do that every other month, it will add up after a while.

I am also an advocate of buying extra supplies.  This is good preparation in the case of an unexpected emergency.  If there is a weather disaster or some other unforeseen disaster, then you will have that extra bottled water, toilet paper, etc.

In addition, buying extra supplies is a good inflation hedge.  You are buying extra things now before they go up in price.  It is unlikely that prices will go down and you will lose from it.

It is easy to accumulate extra things you need over time.  The next time you make a trip to Walmart (or wherever you shop that is relatively inexpensive), pick up a few extra things, particularly if they are on sale.  This could include things like paper towel, toothpaste, shampoo, razor blades, bottled water, toilet paper, and even some food items.  Just make sure they are things that you will use and make sure they have a long shelf life.  As long as you have some extra storage space in your home, then this is really easy to do.  The worst case scenario is that prices don’t go up and you use the stuff.  (Actually that is probably the best case scenario.)  It is not like you are going to miss that .02% return that you get in your savings account right now.

The point is that virtually everyone can take action steps to accumulate wealth and hedge against trouble ahead.  Even if you are only able to save a very small amount each month, it is still better than nothing.  Don’t just throw up your hands and say that it is impossible.  If you can just buy one silver coin per month, that is better than many other people are doing.  You have to start somewhere.

I recently wrote a piece about Paul Ryan and the problem of unfunded liabilities.  I don’t think any of Ryan’s proposals will solve anything in the long term because he is not proposing any serious cuts.  However, it is interesting that this important subject is getting some widespread attention.

In my piece, I said that Laurence Kotlikoff, now an economics professor, has calculated the unfunded liabilities (government promises) at over $200 trillion.  This is probably the most significant issue facing America right now, as many people just entering retirement or getting close to what they think is retirement are simply unprepared.  They will be relying on the government and the government simply will not have the funds to pay for all of its promises.

I believe the other major issue facing this country is the banking system.  Due to all of the prior creations of entities like the Federal Reserve and the FDIC, and all of the regulations in the industry, there is an unprecedented misallocation of resources due to the moral hazard.  The Fed and the FDIC always stand ready to bail out the banks and it has made the major banks reckless.  This is why they had to be bailed out in 2008, but unfortunately, it is questionable whether any of the major banks could be considered solvent now.  The only reason they can be considered solvent is because of the backing of the Fed and FDIC.

So the banking system and the massive unfunded liabilities are the two major threats to this country when it comes to anything financial.  I think the biggest threat stemming from these two subjects is hyperinflation.  I hear many libertarians and/ or Austrian school followers predicting hyperinflation.  I’m not sure if they understand the implications of their prediction.

Hyperinflation in the U.S. would be the most devastating scenario.  We live in an extremely high division of labor society.  Most people cannot grow their own food, make their own clothes, or find natural treatments for health ailments.  Most people cannot even fix a shingle on their roof.

In a hyperinflation situation, we are talking about a major breakdown in society.  If there are no substitutes for the dollar, then people will stop going to work and the trucks will stop delivering food to the grocery stores.  That is why it is so important to have alternative currencies or money available.  When hyperinflation hit Zimbabwe, the people there could at least use gold and U.S. dollars.

While it would be possible for the marketplace to adjust (meaning people), the U.S. government holds a monopoly on the use of legal tender, which is the U.S. dollar.  It makes it very difficult for other forms of money to compete when you are almost essentially forced to use dollars.

So hyperinflation is by far the biggest threat facing this country.  We would much prefer a depression.  I don’t think the Fed is likely to go to hyperinflation.  Perhaps we will see high price inflation like we saw in the 1970’s, but just like that time, I think the Fed would stop creating money to save the dollar, if necessary.  I think the Fed will keep creating money out of thin air to save the major banks, but there will come a point that the Fed will stop buying government debt.  This will force Congress to cut spending.

While I am an adamant opponent of the Fed, there is a situation that could be worse than having the Fed.  If Congress were to take over the Fed and take control over issuing new money and buying government debt, then I think hyperinflation becomes a more realistic scenario.

For this, the whole subject of auditing the Fed scares me a little.  Ron Paul has been a great opponent of the Fed.  He has been a great advocate for less secrecy and more transparency.  I do worry though when his supporters really get into the one piece about auditing the Fed.  While the Fed should certainly be held accountable (even though it shouldn’t exist at all), I don’t want there to be an excuse for Congress to take over from the Fed.

Ron Paul supporters who clamor for an audit of the Fed need to be careful what they wish for.  I understand their motivation.  They believe they are close to actually winning a victory in terms of legislation.  And I’m sure that a full audit of the Fed would reveal some appalling things.  However, every libertarian supporter of auditing the Fed needs to add a disclaimer every time he clamors for an audit.  He needs to say that he wants an audit of the Fed, but under no circumstances should the Congress ever take over full control of the monetary system.  Regardless, I think it is better to advocate a repeal of the legal tender laws.

Congress taking over the Fed is our biggest threat.  That could lead to hyperinflation and a complete breakdown in our civilization.  I believe clamoring for an audit of the Fed may actually make this more likely.  There is a reason that Ron Paul wrote a book called “End the Fed” and not one called “Audit the Fed”.

Libertarians should continue to speak out against the Fed and central banking in general.  But we should also make it clear that the monetary system should be left to the free market.  We do not want Congress (or the presidency) directly controlling monetary policy.  It would be disastrous.

A few people get in at the bottom of a market.  Some of it is luck and some of it is skill.  Some people see opportunities where others don’t and they take them.  Some people bought gold in the year 2000 at under $300 per ounce when most others were not interested.  You could even say the same thing about stocks in 2009 after they had crashed down.

I believe the housing market presents a real opportunity for some people right now.  Investing in real estate isn’t for everyone, but I believe there are too many people who are not taking advantage of the current situation of low interest rates and low prices.

Housing in some parts of the U.S. is down by 50% or more from the peak about 6 years ago.  I find it funny when someone says that you would be a fool to buy housing now when there are still a lot of bank-owned properties and prices could go down more.  I will only listen to someone saying this if he was saying the same thing 6 or 7 years ago.  In fact, if someone is a fool now for buying a house, that means someone who bought 6 years ago was twice the fool, so the person saying this should have been saying it vociferously back then.

I believe the housing market in some areas right now is presenting a real opportunity.  With that said, I think you need some saved money to seize the opportunity.  If you barely have any money to your name, it will be hard for you to get a loan.  You also need a bit of a cushion for anything that may go wrong and for the time it takes you to get it rented (assuming investment real estate).

Some people object because they don’t want to be a landlord.  This is understandable, but it is also one of the reasons it presents an opportunity, because others are thinking the same.  However, it is easy today to find a management company that will manage your property for a fee of around 10% per month of the rent.

Another objection, particularly by libertarians, is that there is an uncertainty about property taxes.  While there are no guarantees, it is unlikely you will see property taxes go up dramatically right now in most areas when people are being squeezed.  Local governments are being forced to cut back, unlike the federal government.  As long as your location is not already highly taxed, like New York City or Los Angeles, then I don’t think this needs to be a big concern.

Again, the main barrier is money.  If you have a good down payment of about 25%, money for closing costs, and some more for a cushion, then you are in good shape to look.

The one thing I would warn about is old houses and old condos.  You don’t want a big assessment with a condo.  You also don’t want major repairs with an old house.  It is preferable to buy something newer.

Run the numbers in your area.  Assume you can get a loan for the full price, even though you won’t.  Then add in taxes, insurance, and association fees.  Can you still get positive cash flow each month?  If so, then you probably have a good deal.  If you then put 25% down, then your cash flow will be that much better.

There are a lot of factors to consider, but I believe that investing in residential real estate is a great opportunity in many areas of the country right now.  If you have the money, you should consider it.

Lew Rockwell has posted a nice piece on his website about voting, or perhaps I should say not voting.  He says that voting does not change the situation.  He says that not voting “makes them [politicians], just on the margin, a bit more fearful that they are ruling us without our consent.”

Ironically, Rockwell departs a little bit from his icon, Murray Rothbard.  Rothbard, even as an anarchist, was not afraid to ally himself with others, including politicians.  He saw nothing wrong with supporting the lesser of two evils, as long as it was a move towards liberty, or at least less tyranny.  Rothbard was willing to use the system, even if he disagreed with it.

Just to be clear, if Rockwell is disagreeing with Rothbard on this point, it is only a disagreement about strategy.  It is not a disagreement about where we should be going.

I take the middle ground between their positions, if that is possible.  Like Rothbard, I do not see any contradiction in voting, even if you are a radical libertarian.  The act of voting is not violating a libertarian principle of advocating the initiation of force.  I suppose someone could argue that counting the ballot might be a government expense, but this money was already extracted anyway.

If the act of voting can help move us closer to liberty, then I am all for it.  However, like Rockwell, I don’t see that it will change the situation in this presidential election.  (In my opinion, if Rothbard were alive today, I highly doubt he would be supporting Romney or Obama.)

If I am going to vote in any election, it can’t just be voting for the lesser of evils.  I will only vote for principled libertarians.  There are few people in Congress I would vote for.  I would vote for Ron Paul. I might vote for Justin Amash.  If I lived in Kentucky, it would have been a tough choice on whether to vote for Rand Paul.  If I lived in Kentucky and had a choice to vote for Rand Paul now, based on what I know, I probably wouldn’t vote for him.

The main reason I would vote for libertarians is so that they could spread the gospel.  Ron Paul has not been a great Congressman because he has affected legislation.  He has been great because he has educated millions of people.

I don’t trust people running for political office unless they can prove to me otherwise.  I won’t vote for someone who is pandering, unless he is a really good panderer on behalf of liberty.  I want to see consistency.  I want to see specifics offered in the way of dramatic spending cuts.  This goes for the presidential election, congressional elections, and even local elections.

I have not decided what I will do this November.  The one thing I am certain of is that I won’t be voting for Romney or Obama.  I am debating between 4 choices at this point:

1) Vote for Gary Johnson.
2) Vote for Ron Paul (as a write-in candidate).
3) Stay home.
4) Get a ballot and turn it in blank.

There is a strategy behind number 4.  It is different than staying home.  I don’t want to not vote and have people interpret that as apathy.  I am not apathetic.  I care about what the government does in that I want it to do much less.  If I drive to my voting place and get a ballot and turn it in blank, there is no mistaking that for apathy.  Some might call it stupid, but they can’t say that I didn’t care.

I think “none of the above” (NOTA) should be an option on every ballot.  Since that is not listed, then turning in a blank ballot is the next best thing.  If anyone else has a better idea, I’d love to hear it.

In yesterday’s post, I wrote about Paul Ryan and the massive unfunded liabilities of the U.S. government.  While I think Ryan is for big government, it is interesting that he is being portrayed as a government cutter.  While Ryan’s proposals have not advocated any actual cuts in overall spending (even his proposed budgets increase spending), there are discussions about Medicare and Social Security (called “entitlements” for some reason) and possible reform.

At the end of my post yesterday, I wrote that there is a coming divide in America in the next decade and that I will make a prediction as to which side will prevail.

The coming divide will be between generations.  Generally speaking, it will be between young and old.  The young side will be taking the more pro-liberty side.  The old side will be taking the more pro-government side.

As I stated yesterday, there are actually some estimates that the unfunded liabilities now exceed $200 trillion.  The biggest portions of this number belongs to Medicare, Social Security, and government pensions.  Out of those three, Medicare is by far the biggest.  The large majority of those unfunded liabilities (government promises for the future) are for older people.

The U.S. government is setting up the economy for a train wreck.  We are headed over a cliff at a high speed and there may be no way to stop.  Someone is going to get hurt.  The question is, who will get hurt the most?

Eventually, Congress will hit a brick wall.  Social Security has already begun to run a deficit.  More is being paid out than taken in from payroll taxes.  The difference has to be made up from the budget.  This means more debt monetization.  It means that spending will continue to increase until it can’t any longer.

The day of reckoning will come when the Federal Reserve has to stop buying government debt.  There will come a day when interest rates go up and price inflation is high.  If that day doesn’t come, then the Fed will be sitting on its hands out of fear of those things.  Either way, there will come a time when the Fed has to stop creating money out of thin air.  I don’t think the Fed will go to hyperinflation and destroy the whole economy.  Instead, it will stop buying government debt and Congress will have to figure something out.

Congress will be faced with choices.  Voters will be mad, no matter what.  Voters want free lunches.  They want lower taxes with their free lunch.  When the Fed can’t print more money, then free lunches will have to go away.

That is why the American empire will probably fall first.  When given a choice, Americans will tell the politicians to stop fighting wars overseas.  They will prefer that to increased taxes or domestic spending cuts.

While cutting military spending can make a big difference, it won’t be enough.  More will have to be cut.  Some politicians will propose tax increases.  They will be geared towards high income earners, but they may also go after the middle class.  Either way, they won’t work.  Increased tax rates don’t necessarily lead to an increase in government tax collections.

I don’t think it will get to this point anyway.  I am waiting for the first serious politician to stand up and say, “If you vote for me, I will cut Medicare and Social Security benefits for seniors.  I will cut taxes for workers.  People should not have to work harder and longer and struggle to raise their families while older people are taking vacations and playing golf.”  It will be a turning point when that politician actually gets elected.

This will not happen in south Florida.  It also won’t happen in Los Angeles or San Francisco.  But I believe something like this will happen.  It will send shockwaves everywhere.  All of a sudden, there is a message sent to aspiring politicians across the land that you can threaten to take away Medicare and Social Security and not be destroyed in the voting booth.

It hasn’t happened yet because senior citizens vote in large numbers.  But if the economy gets bad enough, more young people will pay attention, as they are already starting.  The younger generation is not going to continue to pay higher taxes into Social Security and Medicare knowing that they won’t be receiving anything comparable in return, if anything at all.

While I don’t think that all Social Security and Medicare will be eliminated, I believe that major changes are coming.  It is inevitable.  The age to collect will go up.  The benefits may get cut, even for people in their 80’s.  Perhaps it will be done by eliminating a cost-of-living adjustment.  The checks will stay the same and they will buy less and less.

I’m not sure how this whole thing will take shape.  I don’t know if it will be divided along party lines or if it will be split.  If it does divide along party lines, I would expect that the Republican Party would represent the younger generation and the Democratic Party would represent the older generation.

Politicians will do almost anything to get elected.  If it becomes popular to take away granny’s Social Security check, then so be it.  Politicians won’t put it in those terms, but they will make it clear that the young people will not see their taxes go up.

I believe the young people will finally get with the program and start to vote based on their pocketbook.  The young side will mostly prevail.  If you are over 65 right now, you may or may not be ok.  Your biggest threat is inflation.  If you are in your 50’s, you will probably get stiffed.  I don’t see any way that you will retire in your 60’s while depending on the government for your retirement income.

Changes are coming.  There is no way that things can keep going on the way they are now.  Plan your future accordingly.

In my last post, I was highly critical of Paul Ryan and his abysmal record, particularly when Bush was president.  However, it is not his support of big government that has been receiving the most attention in the last few days since the announcement that he would be running as Romney’s vice president.  The most attention has gone to Ryan’s proposals to reduce the budget deficits (not the overall debt), in particular by making changes to Medicare and Social Security.

This so happens to coincide with another story that is not being discussed as much.  Economist Laurence Kotlikoff has warned of the coming fiscal calamity.  While I don’t agree with all of his solutions, he makes some valid points.  Kotlikoff writes, “Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.”

Kotlikoff is referring to the unfunded liabilities of the U.S. government.  This really is an astounding number.  There is no way for me to verify if his estimates are even close.  It would take me several days to study the subject and analyze the data enough just to come up with a ballpark figure.  But I’m not seeing anything that disputes his numbers.

It was a few years ago that I first saw an estimate of unfunded liabilities that exceeded $100 trillion.  When I first saw the number, I didn’t think it could be right.  But the more I look at this issue and the more estimates I see, the numbers were probably a good guess and I’m guessing that Kotlikoff’s numbers may be just as good now.

The unfunded liabilities are all of the promises that the government has made, yet not funded.  Social Security is a big one.  The biggest one is Medicare.  The ironic thing is that several trillion dollars of those unfunded liabilities is from the Medicare prescription drug program that Paul Ryan supported.

I think it is important to realize the enormity and importance of these numbers, but at the same time, it is not the end of the world.

Most Americans understand there is a problem.  They can sense it.  They understand there is a debt problem.  Still, most don’t understand many details and they don’t understand the changes that are coming.  I hear younger people joke that Social Security won’t be there when they retire.  They may or may not believe it.  I’m not sure that people in their 40’s and 50’s understand that they are in trouble too.  In fact, almost everyone is going to suffer from this in some way.  Even if someone who is currently 75 keeps receiving the same Social Security checks, what are the chances that the purchasing power won’t decline?

The good news about the unfunded liabilities is that they are not like bonds.  They are not a legal obligation to pay someone (even though the government could default on bonds too).  The government can simply change the rules at any time and break previous promises.  In fact, that is exactly what should be done.

The government could pass a law tomorrow that raises the retirement age (the age to collect Social Security and Medicare benefits) to 75 years old.  With the stroke of a pen, they can eliminate tens of trillions of unfunded liabilities right there.  Sure, it will mean misery for many people as they are forced to return to the workforce, but I’m just pointing out that it is not the end of the world.  Anyway, anyone can retire whenever they want if they don’t want to depend on the government.

Paul Ryan has been assuring people in the last couple of days that he does not support any changes for those who are already 55 or older.  What?  That is a major portion of the baby boomers.  If there are no changes made to someone who is currently 56 years old, they could end up collecting for 30 plus years in retirement if they live long enough.

In other words, Paul Ryan’s plan, while perhaps a better start than most other politicians in DC, does little to close the fiscal gap.

Radical changes are coming, one way or another.  Congress will eventually be forced to cut back.  There are going to be battles on who gets cut the most.  The sooner the problems get addressed, the less devastating the effects will be in the future.  Unfortunately, there is no immediate sign of anything being fixed.

Tomorrow, I will discuss the major divide that is coming to America in the next decade.  I will also make a prediction on which side will prevail.

UPDATE: In the post above, I mistakenly linked to an article from 2010.  Here is a link to the most current article.  Kotlikoff is actually saying that the unfunded liabilities are now $222 trillion.

Mitt Romney has chosen Paul Ryan as his running mate as the presumptive Republican presidential nominee.  As a libertarian, I am quite disappointed in this choice, but mostly for very different reasons than most others would cite.

Paul Ryan, unfortunately, is a fake.  I don’t agree with him on foreign policy or civil liberties, but I won’t even discuss that any further in this post.  For now, I will just focus on his rhetoric and his prior stances on fiscal policy.

Ryan is thought of as a big fiscal conservative, or at least he is portrayed that way in the media and by other politicians.  He is hailed by conservatives for his fiscal toughness.  He is criticized just as much by the Democrats and those on the left.  They will accuse him of all of these bad things because he supposedly doesn’t support their big government policies.

But, like most other politicians, you can’t just listen to the things they say.  If they have a record, you have to actually look at it.  Ryan supported most of the big government policies during the Bush era.  In other words, he is really only a fiscal conservative when a Democrat is president, but even this is arguable.

Ryan supported the Medicare prescription drug bill that was pushed by Bush.  You could call it Bushcare.  It grew the unfunded liabilities by trillions of dollars.  If any Democrat passed anything like this, Republicans would be screaming “socialism” at the top of their lungs, just as they have done with Obamacare.

Ryan also voted for TARP, which was the massive bailout of banks and financial institutions in 2008.  Ryan also supported the bailout of GM and Chrysler.

Ryan also voted for “No Child Left Behind”, for Head Start, for Section 8 Housing, and for an extension of unemployment benefits.  These are just a few of the major highlights.  And again, I am only talking about fiscal issues.  I am not talking about war and civil liberties, which are also fiscal issues, but are in a different category than regular welfare spending.

I’m sure I will have more to say on Ryan’s record in the future, but I think it is obvious for anyone who actually looks at his record to realize that Ryan is no fiscal conservative.

Even Ryan’s “Roadmap for America” is not anything close to resembling libertarianism or fiscal conservatism.  It does not cut spending.  It does not cut the debt.  It only reduces the rate at which the debt would grow, and even this is based on some questionable assumptions.

But here is the really bad thing about Paul Ryan.  He is widely considered as a fiscal conservative and a friend of the Tea Party.  In other words, he is giving a bad name to fiscal conservatism and capitalism in general.

Paul Ryan could end up being like another Reagan (from a bad standpoint).  The Democrats will make their ridiculous accusations that children will starve and old people will be forced to give up their medications and eat dog food.  They will accuse Ryan (and Romney) of cutting government to the bone.  Meanwhile, no such thing will be happening.  Government will continue to grow.  Then the Democrats will blame a bad economy on them, but not because of the growth of big government.  They will say that capitalism has failed.  They will say that cutting government spending doesn’t work.  They will say that fiscal conservatism is bad for the little guy.

If we are going to have big government, I at least want it recognized as such.  I want the big government policies to take the blame for a bad economy, as they rightly should.  I don’t want smaller government blamed for a bad economy when nothing resembling small government has been tried.

This is actually another reason to think that Obama may actually be the lesser of the two evils.  If we are going to have big government, at least let big government get the blame when things go bad.

There was an article by Reuters earlier that was linked on Yahoo Finance.  The title of the piece is “Analysis: Five years on, central banks not yet out of options”.  I can’t say that I disagree with the title.  The central banks, particularly the Fed, have more options with which to further destroy economic growth.

It is an interesting article with a variety of material covered, so I will just hit on a few points that stood out to me.

The article stated: “Conventional monetary policy may be constrained because interest rates in major economies are close to zero, but central bankers retain a plethora of less orthodox options and are increasingly likely to resort to them in coming months if growth prospects keep deteriorating.  Possible courses of action include buying private-sector assets, not just government bonds, and charging banks for parking funds at the central bank with the aim of galvanizing them into lending the money instead.”

On the first point of buying so-called “private-sector assets”, this is nothing new.  These rules were changed four years ago and implemented in late 2008 to bail out the banks.  The Fed gave a direct bailout to the big banks and financial institutions by buying mortgage-backed securities.  The major problem is that the Fed paid a much higher price than what would have been paid in the open free market.  It is as if someone bought a stock at $80 per share and the market price drops to $50.  The Fed comes in and buys the stock at the original price of $80, even though it is only worth $50 now.  It was a pure bailout.

On the second point, it is interesting that the article even mentions charging banks for keeping money at the Fed.  The Fed now pays a quarter of a percent of interest on excess reserves.  With the massive monetary inflation of the last 4 years has come a massive buildup of excess reserves by the commercial banks.  I think it is more out of fear than out of wanting a small .25% interest rate.  The article is correct that the Fed could start charging a fee and that this would press the banks into lending.  The thing the article doesn’t mention is that the Fed is likely not going to do this because it will just cause a massive wave of price inflation.

Then the article talks about Mervyn King of the Bank of England.  In referring to King, the article asks, “Wasn’t it time, he was asked, to try something more radical than ‘quantitative easing’?  How about directly financing government deficits?  How about cancelling the bonds the BOE has bought to create room for tax cuts?  How about bypassing the banks and handing out newly printed central bank money to the public- the late U.S. monetarist Milton Friedman’s famous ‘helicopter drop’?”

Ah yes, the famous helicopter drop.  That is how Ben Bernanke got the nickname of Helicopter Ben.  So in other words, buying government debt indirectly by the central banks is not enough.  While King rejected the ideas, it is funny how many people are pushing the central banks to take “bolder” steps.  In other words, they want more direct inflation and more of it.

There are a lot of schemes being discussed by the “experts” and commentators on what central banks should do.  Their Keynesian style money creation has failed to work and they are desperate for more drastic measures, which will only make things worse.

The Federal Reserve (or any central bank) is not capable of creating wealth.  They can only stimulate the economy at the expense of the economy further down the road.  At some point, the game ends.  Either there will be a correction and a major reallocation of resources (which is what we need) or we will first suffer from major price inflation and higher interest rates.  But even in the second scenario, we will still eventually get a major correction.

There will be another correction regardless of what the Fed does at this point.  They can try charging banks for holding excess reserves.  They can try more “twisting” with buying longer-term debt.  They can try more quantitative easing and they can call it whatever they want.  They can try any scheme they want.  They are only delaying the inevitable, which is another major correction.