Rand Paul gave his speech at the Republican National Convention.  The Republican establishment would not let his father speak, unless he was willing to endorse Romney and have his speech pre-approved.  Needless to say, Ron Paul is not endorsing Romney and he is not getting any pre-approvals for his speeches.  The Republican establishment could count on Rand to be a little more diplomatic.  Translation: the Republican establishment could count on Rand to speak less radically in favor of liberty.

Rand Paul is a pretty good speaker.  There isn’t much he said in his speech that I (as a radical libertarian) would disagree with.  In some ways, Rand’s speech reminded me of Ronald Reagan a little bit.  I’m not sure if anyone will ever have the charm of Reagan, but Rand Paul certainly spoke well and spoke well in favor of liberty.  My disagreements with Rand Paul and speech are not on the things he said (except his endorsement of Romney).  It was the things that he didn’t say that I really disagree with.

Most of his speech was about attacking Obama and his presidency.  It was like listening to a good episode of Rush Limbaugh.  Most of the criticisms he threw at Obama were valid.  My problem is that many of the same things could have been said about George W. Bush or Mitt Romney.

Obama passed Obamacare, but Bush passed his Medicare prescription drug plan and Romney passed Romneycare in Massachusetts.  Bush racked up massive debt on his watch and supported massive bailouts.  If Romney is elected, I have no doubt that the massive deficits will continue.

Rand did give a brief mention about how Republicans need to admit that not all military spending is necessary or well-spent.  He had to throw a bone to his dad’s supporters.  Of course, he didn’t mention the hundreds of thousands of innocent lives that have been lost due to the U.S. wars.  He didn’t mention that the U.S. government has become the policeman and wanna-be dictator of the world.

The last time I posted something about Rand Paul, I was very critical and I said that he threw away his future political career.  I made that statement because I think there is a good portion of Ron Paul supporters who simply don’t trust him anymore, and rightfully so.  However, I may have to take back my statement about his political career being over.  Rand gave a very uplifting speech and he may be able to imitate Reagan enough to pull the wool over the eyes of the Republican electorate.  While I’m sure many Ron Paul supporters would support him in the future (and many wouldn’t), I think there are many non-Ron Paul supporters who would be happy with Rand.

While Rand Paul is certainly the best senator in Washington DC, that is not saying much.  He may end up being the best speaker at the convention (from a libertarian standpoint), but again, that isn’t saying much.  I don’t think I will be investing any time or money with Rand in his future political career.  I simply cannot trust him to the same extent that I can trust his dad.  Rand seems like a genuinely nice guy, but there is only one Ron Paul.  I think our future in liberty does not lie in politics, but in education and technology.

I have argued that I don’t think hyperinflation is a likely scenario in America.  I know that the statists have changed the definition of inflation from meaning an increase in the money supply to an increase in prices.  For today’s post, when I talk about hyperinflation, I am referring to prices.  I would consider price inflation of 100% or more per year to be in the category of hyperinflation, but I realize that definitions can differ.

I think hyperinflation is unlikely because it would lead to a massive breakdown of the division of labor, particularly without any existing competing currencies or other forms of money, mostly because of the legal tender laws and other restrictions on precious metals.  I don’t see the Federal Reserve going all the way to hyperinflation as they would be destroying themselves along with the entire economy.  While most of the Fed officials are foolish, they are not completely stupid.

It is technically possible to have hyperinflation even if the Fed tries to stop it.  As I discussed in my previous post, the Fed cannot always withdraw all of the money that it creates.  If it buys shares of a particular stock for $100 per share and then the price drops to $30 per share, then the Fed can only sell the shares in the open market for $30 per share at that point.  It can only withdraw 30% of the money that it originally created to buy the stock.

While we don’t know if the Fed has been buying stocks, we do know that the Fed has been buying government bonds and mortgage-backed securities.  We already know that the mortgage-backed securities are worth less than what the Fed bought them for.  If interest rates were to rise, then the government bonds in its portfolio would also decrease in value.

But even if all of this happened, the Fed could still sell the assets it has and withdraw some money that was previously created.  In addition, just by announcing that it will no longer monetize any debt for an extended period of time, this would probably be enough to avert a hyperinflation scenario.

Ironically, the libertarian movement might create the best chance for a hyperinflation scenario.  While the libertarian movement should keep the Fed somewhat in check, it might also have a great effect on people’s views on money.

Hyperinflation usually occurs because of a massive increase in the money supply.  People come to believe that the money printing will never stop or even slow down.  People then demand less cash.  They try to spend it instead, driving up velocity.  As money changes hands quicker, it drives up prices faster and faster.  This eventually leads to hyperinflation.

If libertarians convince enough people that the U.S. dollar will eventually end up like every other fiat currency in history and go to zero, then this alone could take down the dollar.  Imagine if 20 million people started listening and believing everything that Ron Paul says.  Now imagine if these 20 million people take half of their money and start buying hard assets like gold, silver, real estate, etc.  Not only would the price of hard assets go up, but the dollar would go down.  The demand for the U.S. dollar would go down.  This in turn might get more people to question the dollar.  It is like a snowball effect.

So technically speaking, it is possible to see a currency destroyed even if the money supply is not increasing dramatically, or even at all.  It would take a huge shift in the attitudes of the American people to do this, but it is possible.  Not only would they have to understand the dangers of a fiat currency, but they would also have to believe that others see the same thing.  If everyone turned into a libertarian overnight, yet nobody announced it, then the dollar would probably survive because even libertarians hold dollars, thinking that everyone around them will continue to use it and trust it as money.

As you can see, psychology plays a huge role in the demand for money, which in turn affects overall prices.  So while the money supply is important to watch, it is not everything when it comes to price inflation.

In response to one of my posts last week on Helicopter Ben Bernanke, I received a comment/ question. While it is a fairly easy question to answer, I thought I would expand some thoughts on it and I thought it might be interesting to others.

The comment said, “Just curious.  Can the Fed do negative printing.  By that I mean, can it reduce the money that is out there?  Can it take in dollar bills and burn them if they think inflation is getting out of control?  Or the equivalent in our digital world.  So if the US has $3 trillion in circulation, can they reduce that number to $2.5 trillion somehow?  Not sure why I’m asking, I’m just curious I guess.”

The short answer to the question is “yes”.  The Federal Reserve can reduce the money supply that is in circulation.  It would not do this by taking in dollar bills and burning them, although technically it probably could do this.  It would do it digitally, doing the reverse of how it created money in the first place.

The Fed creates money out of thin air by buying assets.  Usually these assets consist of government debt.  It does not buy this government debt directly through the government, although there is probably no reason that it couldn’t.  It buys it through an intermediary, usually a large bank or financial institution.  It buys the debt and basically does a computer entry onto the bank’s books.

If an individual bought a government bond from a bank, then money would transfer from that individual’s checking account into the bank’s account.  Ownership of the bond would transfer to the individual.  No new money is created in the process.  It is just changing hands.  In the case of the Fed buying a government bond (or lots of them), it is using money created out of thin air to buy.  This is monetary inflation.

If the Fed wants to reduce the supply of money, it can do the reverse and sell the government bonds.  The bank (or whoever is buying the bonds) would transfer money back to the Fed, which would then magically disappear from the system.  It really isn’t magic, but it almost seems like it.  This is monetary deflation, as it is reducing the overall money supply, even if just digitally speaking.

The Fed can also reduce the money supply by simply refusing to rollover government debt.  When a bond expires, the Treasury Department would have to pay back the principal amount on the bond.  If the Fed does not buy another bond to replace it, then that money is essentially pulled out of the system, except any money that the Fed uses to pay for its own expenses.

There is a scenario where the Fed may not be able to reduce the money supply to the same extent that it increased the money supply.  If it bought long-term bonds and the rates go up, then the market value of the bonds will go down.  If the Fed sells these bonds in the open market before expiration, it will not be able to sell them for the same price at which they were bought.

The same goes for any other asset.  One area where this subject is particularly glaring right now is mortgage-backed securities.  The Fed started buying these back in late 2008 and paid the full value that the banks had them valued for on their books, even though they were worth far less.  Due to defaulting mortgages, these securities are worth far less than what the Fed paid for them.

Just for example, if the Fed bought $600 billion in mortgage-backed securities and they are now worth only $400 billion, then the Fed would only be able to withdraw $400 billion from the system (from selling these particular assets).  I suppose they could force the banks to buy them back for the full amount, but that would probably bankrupt the banks, which the Fed obviously wouldn’t do.  So even if the Fed sold all of the mortgage-backed securities from its portfolio, there would still be a net increase of $200 billion in the money supply from the above example.  This would only be an increase from the last 4 years regarding this particular asset.  Looking at it just from a short time frame of this year, selling these assets now would be monetary deflation.

Of course, the Fed can control price inflation in other ways through manipulation of interest rates, controlling rates paid on excess reserves, and also controlling the required reserves of the banks.  The Fed can also control price inflation simply by telling the marketplace what it plans to do.  If most people believe that the Fed will inflate the money supply significantly in the near future, this in itself can increase velocity and increase price inflation.

There are a lot of variables to consider and that it why it can be quite difficult to predict price inflation, particularly in the short term.  The Fed can certainly sell some assets and reduce the money supply, but I would be surprised if it did this right now, especially since price inflation is relatively low (at least for now) and the economy continues to stagnate.

I believe there are two major threats facing the American economy, both now and in the future.  One is the unfunded liabilities, which by some estimates is now over $200 trillion.  This will be solved through default.  It is hard to say how this default will take place, but it will be mostly older people who feel it the worst, since most of the unfunded liabilities are in the form of Medicare, Social Security, and government pensions.  While this will be a painful process, there is a solution, even if it isn’t exactly ideal.

The other major threat facing America is the banking system.  It is highly regulated.  There is essentially a cartel.  There is no free market.  The Federal Reserve and the FDIC are the biggest problems as they create a giant moral hazard in which the big banks reap major profits during the good times and then get bailed out during bad times.  It is corporatism at its worst.

The banks were majorly bailed out in 2008.  It is still questionable just how solvent the major banks are today.  It is always hard to say because of the presence of the Fed and the FDIC.  If those entities didn’t exist and there were a true free market in banking, then insolvent banks wouldn’t last long.  They would have to be far more responsible or face bankruptcy.

This is an extremely difficult subject for libertarians.  If I had the opportunity to eliminate the federal Department of Education tomorrow, I would do it instantly.  While it wouldn’t be pain free, it wouldn’t be devastating for anyone, except perhaps the bureaucrats working there.  I could say the same thing about many federal programs.  They could be eliminated almost immediately without having any widespread devastating impact on the whole economy.  I can’t say the same thing for the FDIC.

While most Americans opposed the bailouts in 2008, Americans would have been far more upset if they had gone to their local ATM and not been able to withdraw funds.  It would have been even worse if they couldn’t write checks or use debit cards.  I understand how fragile the banking system is right now and how dependent the whole economy is on the current system.

I have my ideas on what a libertarian society should look like.  There should be a free market in banking and money.  The marketplace should determine the money used.  It would probably pick gold.  It might be more than one thing.  Regardless, that is for the market to decide.  If banks are honest about their fractional reserve lending, then I don’t think it should be illegal.  I have written about this before.  But they would be on their own, with no bailouts.  I don’t believe we would see much fractional reserve lending in a true free market environment.

The big question is how we get from here to there.  How do we phase out the FDIC and the Fed?  It surprises me how little I see this discussed in the libertarian community.  I think it is a difficult subject for libertarians because it almost takes some form of central planning to get away from the central planning.  It is hard just for me to say that as a libertarian.

Jeffrey Herbener presented testimony before the Subcommittee on Domestic Monetary Policy and Technology Committee on Financial Services back in May 2012.  If you go to the latter part of his written testimony titled “Monetary Reform”, you can read his idea on how to reform the system.

In short, Herbener advocates getting to a system where the primary step “is to turn FRNs into 100-percent-reserve redemption claims for gold coins.”  He continues, “The other step along this path to a market monetary system is to establish a 100 percent reserve of money against bank-issued fiduciary media.”  He goes on to advocate that banks would need to build their cash reserves up to 100 percent of their checkable deposits (which would be much easier to do now since banks have accumulated massive excess reserves).

Assuming that the Fed holds the gold that it says it does, this could then be used to back up the existing cash in the banking system.  Herbener calculates that the redemption ratio would be $4,207 per ounce of gold.

I give Herbener great credit for at least trying to lay out some sort of solution.  Most libertarians can not offer any serious ideas on how to get out of the current mess without creating total havoc.  I think Herbener is somewhere along the right track.

Herbener says, “Once this transition was accomplished, the government should permit private production of money and money certificates according to the general laws of commerce.”  I would amend this slightly and say, “why wait?”  I think private competition should be allowed at any time, whether it is in banking or money production.

I would like to build on Herbener’s suggestions slightly and say that we should repeal legal tender laws as soon as possible and we should allow free banking as soon as possible as well.  To get out of the current mess, I think any bank should be able to get away from government regulation and control, so long as they agree to not be insured under the FDIC.  While I’m not a fan of government regulation, I think all banks currently insured under the FDIC should be subject to oversight and be required to increase their reserves to 100 percent, until such time as the FDIC is fully abolished.  If they don’t like the rules, then they can get out from under them and no longer be insured by the FDIC.

I think we need to phase out the FDIC and I think Herbener has a plan that is a great starting point for this discussion.  I only wish that more libertarians would have the courage to study and address the issue.  The government and the bankers have made a mess and we need to find a way to get out of it without causing a total collapse of the financial system.  We need libertarian solutions to achieve libertarian goals.

Gold had been trading in a narrow range for several months.  It was almost boring to watch.  It was actually quite amazing to see such a lack of volatility.

Things have started to change this week.  Gold has had a good week, going above $1,670 today.  Is this a renewal of the bull market or just a tease for gold bulls?

I continue to say that much will depend on the actions of the Federal Reserve and the overall direction of the economy.  If we sink back into a deep recession, I wouldn’t expect gold to do too well.  However, if that triggers a massive new round of money creation by the Fed, then we could see new all-time highs coming for gold.

Gold was already going up a bit when minutes were released on Wednesday from the last FOMC meeting.  Many analysts interpreted the Fed’s comments to mean that QE3 would be announced at their next meeting in September.  I don’t know if they are just reading it how they want it to be, or if this is a good analysis.  Perhaps they are trying for something similar to the self-fulfilling prophecy method.  In this case, they are predicting easing by the Fed so that the Fed feels compelled to do something and not let the market down.

I still have my doubts about QE3 being imminent.  The Fed has been very tight since the end of QE2.  I am not sure why it is holding back, but I suspect that the banking establishment does have some understanding that there are negative consequences to massive money creation.  Perhaps they are fearful that price inflation will get out of control quickly.  Perhaps they feel that the major banks are in dire straights and that the next QE needs to be saved to bail out the banks, instead of bailing out the stock market.

This makes the future gold price highly dependent on the actions of the FOMC at the next meeting.  If a massive new QE program is announced, then expect new highs from gold.  In fact, it would not surprise me to see it pass $2,000 on such news.  If the Fed disappoints the Keynesians out there and doesn’t do much of anything, then it makes the situation much more uncertain.  I wouldn’t necessarily bet against gold in such a scenario, but I wouldn’t be counting on a huge spike in the near term either.

Your investing strategy should stay the same, regardless of the short-term movements in the gold price and the stock market.  If you set up a permanent portfolio and forget about it (except to rebalance once in a while), then you don’t need to worry much.

If you are looking to accumulate gold, then it is hard to say if you missed a good buying opportunity just now.  But if you have been procrastinating, then don’t wait any longer.  Just buy and forget about it.  You shouldn’t worry about the short-term price swings.

I really believe that the next few years will be quite interesting.  There is going to be a massive correction of all of this malinvestment at some point.  I expect volatility in the gold price to pick up quite substantially.  Perhaps this week was the beginning of the next wild ride.

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.