The Supreme Court has mostly upheld the healthcare law, also known as Obamacare.  The major portion that everyone was paying attention to was the individual mandate that would force individuals to buy health insurance or else pay a penalty (a tax).

The most surprising thing is that the chief justice, John Roberts, actually sided with the “left judges” in upholding most of the law.  This is just another stain against the Bush presidency.  There are two things that conservatives think they can brag about when it comes to Bush.  They brag about the so-called Bush tax cuts, which are set to expire again.  And they brag about getting conservatives on the bench.  Well, so much for that one now.

I actually don’t think this is necessarily the worst outcome.  As I have written before, if the court had struck down the individual mandate and upheld everything else, it may have actually led us down an even quicker path to fully socialized healthcare.

Roberts justified his decision by saying that the individual mandate is a tax (which Obama claimed wasn’t a tax when he was promoting it).  Roberts basically said that since the Congress has the power to tax, then the individual mandate is constitutional since it can be considered a tax.

In other words, the federal government can do whatever it wants now.  I guess if Obama wants to make sure that the NDAA is upheld, he should just add a small tax to it.  That way Americans can directly pay for their own kidnapping and it will be constitutional.  If the government wants to force you to exercise, or eat vegetables, or have kids, then it can just tax you for it and then it will be all legal in the eyes of Roberts and the Supreme Court.

The 10th Amendment has been close to dead for many decades.  I think it is officially dead now.

There is one major big picture thing here that I have not heard mentioned by the so-called mainstream media.  How is it that the fate of over 300 million people lies in the hands of just 9 people?  Actually, this whole decision really came down to just one person.  So because Roberts thought a certain way, or maybe was convinced by a relative, or maybe was drinking a few shots of tequila when he was writing his opinion, there are now over 300 million people subject to this ruling.

That just shows that the whole system is a complete mess.  The federal government (or maybe national government would be a more appropriate term) has virtually no limits except as to not completely set off irate Americans.  The government can do virtually anything now, unless the American people decide to not take it anymore.

Americans must start paying attention and stop relying on government.  In fact, they must realize that their lives would be much better off with a drastically smaller government.  It isn’t good enough just to complain about the way things are run.  They must withdraw their consent.  They must realize that government should not be involved in healthcare or education or agriculture or housing or any of the other thousands of things it messes up.

There will probably be some new enthusiasm for state nullification, now realizing that it is foolish to rely on the Supreme Court, a branch of the federal government, to reduce the power of the federal government.

Of course, Romney, practically the founder of Obamacare in Massachusetts, is not going to save us.  The Republican politicians in DC will not save us either.  Even if they could repeal Obamacare, they would come up with something just as bad, just as Bush passed his Medicare prescription drug program.

This whole thing is far from over.  I think a combination of a new spirit of liberty in the American people and also advancing technology, can help to overcome this mess.  As long as there are free minds speaking in favor of the libertarian position, then there is hope.

There is a bit of a feud going on in the Austrian economics family.  It started with a really long article by Jesus Huerta de Soto entitled “An Austrian Defense of the Euro”.  It was published on the Mises Institute’s website.  Yes, you did read that correctly.  He actually somewhat defends the euro from an Austrian perspective.

Gary North published a long article (not quite as long though) as a rebuttal.  North blasts de Soto in so many areas, I wouldn’t even know where to start.  Gary North does have an excellent understanding of economics and morality and he makes a lot of relevant points to refute de Soto.

One of the things North discusses in his piece is 100% reserve banking.  He said that he has never seen the point made that Rothbard was an anarchist and yet he advocated for a law against fractional reserve banking.  He sees this as a contradiction.  I have commented on fractional reserve banking before.

If that wasn’t enough, Walter Block chimed in at Lew Rockwell’s blog.  North and Block have been at each other’s throats ever since their live debate on the subject of getting a PhD in economics.

Block makes the point that even though someone is an anarchist, it doesn’t mean he doesn’t believe in laws.  He just doesn’t believe in government laws.  They would be implemented by the market and private defense agencies.  Block is correct to point out that anarchists favor laws against murder, rape, etc.  It is just that they don’t believe in having a government to enforce them.

Block goes on to say, “Murray opposed (again, as a libertarian, not Austrian) the free banking (of Selgin and White).”  This doesn’t really make any sense.  If anything, you would be opposed to free banking as an Austrian, but not as a libertarian.  Austrian economics would study the pragmatism of a certain policy.  Libertarianism would study the morality of a certain policy.

There is another thing wrong with just that sentence.  Why does Block invoke the names of Selgin and White?  Why can’t he just deal with free banking in general instead of just the arguments of two individuals?  Gary North mentioned nothing about Selgin and White in his piece.  Ok, so Rothbard opposed the free banking advocated by Selgin and White.  What about the free banking not advocated by Selgin and White?  Is Block just trying to confuse the issue here?

Block says that fractional reserve banking is fraud.  Does that mean he also wants to outlaw insurance agencies?  If everyone got into a car accident tomorrow, there is no way that the insurance companies could pay everyone the contracted amount.  Yet, even without government mandates, most individuals would continue to buy car insurance voluntarily.  If he were consistent here, then he should favor laws banning insurance.

And finally, and most important, Block says that anarchists are still in favor of laws.  They just shouldn’t be government laws.  That is fine as far as I’m concerned.  But even if laws are enforced by private defense agencies, there are still guns involved.  I can understand an agency, or even an individual, using force on a murderer or rapist.  But Block wants to invoke violence regarding fractional reserve banking.  You can have consenting adults who agree to certain terms of a contract.  The bank customer can even be completely aware that the bank is not holding all deposits in reserve.  Yet Walter Block would use a gun or hire someone with a gun to break up the contract.

My question for Block is, who would you point the gun at?  Would you point the gun at the bank customers, the banker, or both?  If they did not cease and desist, would you kill them?  If you kill someone over lending, based on an agreed contract, how libertarian is that?

I am a big proponent of the permanent portfolio, as described in Harry Browne’s book Fail-Safe Investing.  I believe it, or something similar to it, should be the rock of everyone’s portfolio.  It should be your safety, even though nothing is entirely safe in this world.  It should be your home base.

The permanent portfolio is simple.  It is made up of gold, stocks, long-term government bonds, and cash (or something similar to cash, like a money market fund).  These should be weighted approximately equal at 25% each.  If one asset class strays too far outside of a range, then the portfolio should be rebalanced to get you back to an approximate 25% each.

An alternative to the permanent portfolio itself is a mutual fund.  The trading symbol is PRPFX.  It is designed similar to the permanent portfolio.  In fact, it is called the permanent portfolio fund.

I like PRPFX because it is simple and also because it keeps you disciplined.  It doesn’t tempt you to speculate and favor one asset class over another.  That can be very tempting to do in today’s environment.  My suggestion is that if you think we will see big inflation in the near future and you think gold and silver will do really well, then speculate in gold and silver investments outside of your permanent portfolio portion.

I also see a downside to PRPFX.  I have discussed this before.  I don’t like that it strays from the originally suggested permanent portfolio, particularly with its investments in Swiss francs.  PRPFX has the following target percentages:

20% in gold
5% in silver
10% in Swiss franc assets
15% in stocks of U.S. and foreign real estate and natural resource companies
15% in aggressive growth stocks
35% in dollar assets

I have never really liked the portion in Swiss franc assets because the gold portion is already there to protect you from a depreciating U.S. dollar (assuming you are an American and investing dollars).  While the Swiss franc has historically been a strong currency, it is still a fiat currency.  This was shown last year when the Swiss central bank announced that it would peg the franc to the euro.  This has been part of the reason that PRPFX has struggled recently.

In 2011, PRPFX went up just 2.13%.  This was during a time of relatively low price inflation, but it is still a poor performance considering that the U.S. economy was not officially in a recession during that time.  PRPFX went down 8.36% in 2008.  It was the only down year in the last 10 years.  In some ways, this was its strongest year, at least relative to everything else.  Stocks and gold took a big fall in late 2008, although bonds did fairly well.  PRPFX did its job in 2008 in the face of a recession.  It followed with really strong years in 2009 and 2010, both up about 19%.

As of this writing, the year-to-date performance for PRPFX is flat.  This means you have actually lost a little bit of money to price inflation.  The 5-year average return is still almost 8%, which is considerably good in this economic environment.

In conclusion, I don’t like the Swiss francs in PRPFX, and the mutual fund has not performed all that well in the last year.  However, unless you go through the trouble of setting up your own permanent portfolio (which I think you should), then PRPFX is still probably the next best alternative.  There is a lot of uncertainty in the economy right now and it is hard to say if we will go into a recession, depression, or inflation, or maybe all of the above.  Keep your money as safe and sound as you can.

This whole situation is ironic.  In trying to advance his political career, Rand Paul has virtually ended his political career.  Rand Paul could have taken the torch from Ron Paul.  He seemed like the perfect candidate to many.  He has the same last name.  He is his son.  His first name is the last name of Ayn Rand.  He is a senator.  He could’ve been a contender.

If there is one thing that Rand Paul has made clear, it is that no two people are alike, even if you are related by blood.  Look at Warren Buffett.  He is a pure statist, yet he is the son of Howard Buffett who was a great libertarian congressman.

Rand Paul ended his political career when he endorsed Mitt Romney.  It doesn’t necessarily mean that he will lose his next election, assuming it is for re-election in Kentucky.  He won’t ever be president and he won’t ever be vice-president.  I don’t know if he’ll run, but he will never have one-one hundreth of the influence that his father has had.

Rand Paul has completely blown it.  He did not understand why his dad was so successful.  As Tom Woods recently wrote, Ron Paul reached out to the remnant.  He did not play politician in order to please people.  Ron Paul is not charming and good looking enough to have ever won the presidency (at least during this era).  If he had played politician like his son is doing, he never would have amounted to much at all.

Rand Paul does not understand that his dad is really popular because he is radical.  Ron Paul followers don’t want to hear another hack who pretends to be in favor of smaller government and offers half-measures that would never pass and do not motivate others to work for liberty.

Rand Paul’s latest anti-libertarian rhetoric showed up in this interview on CNN.

He wants to get rid of some income tax deductions.  Unless you significantly lower rates across the board, then this is the equivalent of a tax hike.

He also talks about revenue neutrality.  This is my biggest criticism of the Fair Tax.

The best part comes when the interviewer says that when she talks to him (Rand Paul), she sometimes feels like she’s talking to a Democrat.  She said that he isn’t like others in his party who are obsessed with cutting spending.  Rand Paul is flattered by her comment.  I’m sorry, but if anybody said that to me during an interview, I would be very quick to correct them.  Maybe they could say I’m more like a Democrat because of my views on civil liberties or the drug war.  But if someone said I’m like a Democrat because I don’t want to cut spending, the next thing I would say is that I do want to cut spending and I want to cut spending drastically.

But Rand Paul didn’t say that.  He is playing politician.  He wants everyone to like him.  The problem is that the remnant is liking him less and less.  I’m guessing that a lot of hardcore Ron Paul supporters are just about done with Rand and will never contribute another dollar to any of his campaigns.

Rand is not Ron.  Rand is a conservative politician.  Ron is a libertarian.  Ron will continue to teach people and spread the message of liberty.  Rand will continue his political game.  Ron is probably the most influential congressman ever.  Rand will be forgotten in history.

With the mess of the U.S. economy, the European economy, and many other economies worldwide, I believe the biggest problem and the biggest threat to our standard of living is the banking situation.  Of course, it is the governments of the world, working hand in hand with the major banks, that have created this problem.

There is no question that government debt, central bank inflation, government spending, and regulations are a huge detriment to the economy and our standard of living.  These things will continue to create massive problems going forward.  But I see the major banks as the hardest problem to solve.

I have written about the FDIC before here and here.  There has been moral hazard created on a grand scale.  The crazy thing to me is that few libertarians will address this issue.  I think the reason is because it is almost impossible to address it while still sounding like a libertarian.  The government has created such huge problems that it will probably take the government to get out of it.  (Already, I can’t address this subject without sounding like I’m compromising my libertarian principles.)

If you became president and had a libertarian congress that would go along with you, what would you do to solve the banking problem from a libertarian perspective?

Moody’s just recently downgraded the rating status of several major banks.  I’m convinced that one significant event could trigger another scenario like we saw in 2008.  Most of the major banks are on the verge of insolvency.

I believe that is why the Fed has been holding back on QE3.  It has kept the monetary base fairly steady since the end of QE2, almost one year ago.  The Fed is keeping its powder dry until it really needs it.  Bernanke and company are not going to start QE3 just because the Dow Jones went down a few hundred points.  They are going to save QE3 for a major downturn and for another bank bailout.

Of course, if the government were to do things right, we would be in a far better situation today.  Let’s say that in 2008 the government and Fed bailed out the banks and other financial institutions just as they had.  But let’s also say that they withdrew all of the troops from around the world, saving hundreds of billions per year.  Let’s say they eliminated major departments like education and agriculture.  Let’s say that raised the age of Medicare and Social Security.  Let’s say they actually balanced the budget.  Let’s say there was no stimulus plan and no Obamacare.  If all of that government cutting had been done in tandem with the bank bailouts in 2008, we would at least be in a much better situation today and be in a better position to handle another banking crisis.

The FDIC and the Fed have created a moral hazard on an unprecedented scale.  I am clueless as a libertarian on how to get out of this without compromising libertarian principles.  Maybe the bad banks do need to be nationalized one time and then be sold off in parts.  Maybe the Fed needs to create just enough money to get all of the banks to 100% reserves and then set a 100% reserve requirement, both of which I am against for a free market.  Again, none of these are good libertarian solutions, but it is hard to come up with something better.

I suppose a true libertarian solution is to let the banks fail and not have the Fed or FDIC step in.  But even libertarians understand that this would be a complete disaster, particularly with the U.S. dollar being the only form of money used in most situations in America.  That means your checking account at the bank would be wiped out if you don’t get there in time.  I don’t think this “solution” would sit well with most Americans.

The one very libertarian thing that I am in favor of that would help this problem in the long run is to repeal legal tender laws.  It would put a check on Bernanke and the Fed from inflating too much.  And if they did inflate too much, at least people would have the choice of using another form of money.  If there ever were a hyperinflation scenario, at least there might be some kind of an alternative at that point.  As far as banking goes, maybe some banks would actually deal in gold and silver and would be less susceptible to a banking crisis.

In conclusion, the banks are in bad shape and the Fed knows it.  The major banks will be bailed out again if necessary.  At this point, I can’t even come up with a principled libertarian solution that will solve the problem without having a complete disaster.  If anyone has any suggestions, please let me know.

There is often this confusion between independence and libertarianism.  I find that even many libertarians have confusion here.  Libertarians tend to be individualistic and that is fine.  But there is a perception among many (again, libertarians included) that being libertarian means isolating yourself from others.

Libertarianism to me is quite the opposite.  I do not want to isolate myself from the rest of the world.  I want to interact with the people around me (although not all of them).  I want the benefits of mutual exchange, whether it is money being exchanged, products or services being exchanged, ideas being exchanged, friendship being exchanged, etc.

Human beings are only able to prosper through mutual cooperation and the division of labor.  Being a libertarian means that I do not advocate the initiation of force for political or social change.  I advocate peaceful interaction between individuals and groups of people.  However, if someone wishes to be left alone and even isolated from society, it is his right to do so, as long as he is not infringing on others.

Out of billions of people on the planet, there are only a few people who would actually be able to survive while completely isolated.  It would mean catching your own food, building your own shelter, and making your own clothes (if you have any).  While a few people could survive, it would be a miserable life, with little in the way of luxuries.

We have a relatively prosperous society today because we benefit from human cooperation.  The division of labor allows for high production and advanced trading.  We don’t have to catch our own food or build our own shelter or make our own clothes.  We can buy these things with money, which we obtain through serving others.  We have so many luxuries that we take for granted and it is because of peaceful exchange and the high division of labor.

While I understand the sentiment of libertarians who say they would like to move to an isolated island or even an island with just other liberty-minded people, I’m not sure why they would consider themselves better off.  Perhaps they would be more free in their own mind, but their standard of living would be far lower, unless they continued to exchange with the rest of the world.

Libertarians are highly dependent on the people around them, just like everyone else.  There is a big difference between dependence on the government and dependence on individuals around you in which you exchange goods, services, ideas, etc.  Everyone is highly dependent on the free market.  Without the free marketplace in which we exchange things, we would all be living at a subsistence level, if living at all.

This is why libertarians should not run away from society.  I understand running away from a tyrannical country or a high-tax state, but you should not seek to isolate yourself from society as a whole.  You should still try to trade and interact with those around you, even if they are not as pro-liberty minded.  You can benefit from them and you may even show them the benefits of peaceful exchange.

The big news in the financial markets earlier today was the FOMC meeting and the Ben Bernanke news conference.  There was no major news.  The Fed is predicting lower growth than originally expected.  The biggest news is the announcement that “Operation Twist” will continue.  I have written about Operation Twist before.

The stock market did not do much on the news.  Neither did much of anything else.  Oil went down and gold went down a little.  Overall, there was not much excitement either way.

The Fed is grasping at straws with this operation twist business.  As I wrote back in February, this policy is not without its consequences.  Lower long-term rates have not done much for the housing market and who knows what will happen to those rates once the Fed stops buying longer-term bonds.

One thing I suspect is that the Fed is buying longer-term bonds so that there will be less rolling over of debt in the near future.  If interest rates and price inflation both go up, then there will be less shorter-term debt to roll over, which means that interest rate payments will not increase as much for the U.S. government.

Of course, as I mentioned, these longer-term bonds would also decline in value if interest rates go up.  This means that the value of the Fed’s holdings would go down.  It would mean that selling these assets does not deflate the money supply as much.  So if there were a scenario where price inflation was soaring, the Fed would have less ability to slow it down.

Aside from these points, operation twist does not mean much.  The Fed ended QE2 almost a year ago and the monetary base has been flat or even slightly down since that time.
http://research.stlouisfed.org/publications/usfd/page3.pdf

The Fed is in waiting mode right now.  It is trying to be Goldilocks.  Not too much inflation and not too much depression.  The problem is that the porridge is going to start being hot and cold at the same time.  It will be freezing on one side of the mouth and sizzling hot on the other.  In other words, we could end up like the 1970’s where we have a recessionary environment with simultaneous price inflation.

When the time comes, I still believe the Fed will choose a depression over hyperinflation.  I’m not sure when that time will come, but the Fed is trying to hold it off for as long as possible.

As freedom seems to erode in America and government gets bigger, there are some positive aspects to look at.  There are two areas in particular where America is still strong in the liberty category.  They are freedom of speech and freedom to bear arms.  While these two areas do have some government interference, particularly in regards to gun control, America is still a relatively free place when considering these two subjects.  I don’t think it is because they happen to be part of the 1st and 2nd Amendments.  I suppose freedom of religion could also be included in the relatively free category.

One area that puzzles me is freedom of association.  For some reason, many, if not most, Americans simply cannot grasp this concept.  It is easy in some circumstances for Americans to grasp, but then very difficult in other areas.

When Rand Paul was running for U.S. Senate, he came under fire from Rachel Maddow and others for suggesting that certain parts of the 1964 Civil Rights Act were harmful.  While Paul did not exactly do a stellar job of defending himself and his position, he was correct in his original assessment.  The problem with the 1964 act is that it was the major start of government interference in freedom of association.  Instead of just saying that state and local governments cannot discriminate based on race (ignoring the federalism argument), the law extended way beyond that and told individuals and companies outside of government that they couldn’t discriminate.

That was really the major start of what has become our highly-litigious society.  It should not surprise anyone that something like the Americans for Disabilities Act would come decades later, which ironically probably hurts disabled people more than it helps them.

After the Maddow/ Paul interview (or debate), some people reversed it and asked the questions in a different way.  For example, some were asking, can a black restaurant owner prohibit a member of the KKK from entering his restaurant?  When the question was posed this way, then all of a sudden many more people understood freedom of association.  The majority of people said that it was his restaurant and his property, so he should have the right to refuse to serve the KKK member.

Many people do not understand libertarianism simply because they cannot differentiate between the law and social behavior.  When libertarians say they want to legalize drugs, some people take that as encouragement for others to use drugs.  When libertarians say that you shouldn’t have to wear a seat belt, some people think that libertarians are against using seat belts.

When libertarians say that business owners, landlords, or anyone else should be free to discriminate, many people take that as libertarians advocating discrimination based on race, gender, sexual orientation, religion, or whatever.  It is not that libertarians advocate racial discrimination.  It is that libertarians believe in freedom and that includes property rights.  If you own a piece of property, you should be able to invite who you want on it and not invite who you want.  This would include a business owner telling potential employees and customers whether or not they are invited on the business owner’s premises.

Of course, in a free market, most businessmen that discriminated purely on racial grounds (or some other grounds) would likely not do well in business.  It is also the right of people to boycott the business.  In addition, if the business owner were not hiring the best employees at the best available prices because of race, gender, etc., then he would only be hurting himself and the productivity of his business.  But if that is his business, he should be free to make that choice, even if it is not tasteful or outright disgusting, as long as he isn’t initiating force against others.

Freedom of association is one topic where Americans really need to evolve.  We live in a politically correct world now and it is affecting our property rights.  There are a lot of unintended consequences when laws are made interfering with freedom of association.  Americans must see things differently on this topic if America is ever going to be close to free again.

The elections in Greece were held over the weekend.  It seemed that everyone was holding their breath, waiting for the outcome of the elections, and in turn the future of Europe.  You can view the election results here.  As you can see, the first place party could not even break 30%.  Not only was there not a clear majority, nobody could even get a third of the votes.

According to this article, nearly 38% abstained from voting.  For such a seemingly important election, that is a rather high number.  This 38% can be translated into NOTA (none of the above).  It was really NOTA that won the election.

The mainstream media and the rest of the establishment seemed fairly pleased with the results.  Their dream of the European Union and a one-world government is not quite dead yet.  They are still holding out hope that Germany will continue to bail out Greece.

While mixed results in an election can mean different things, I don’t think these Greek elections being so mixed (with seven candidates receiving at least 4%) is the same as what you would see in the U.S.  In the U.S., there are actually some proponents for smaller government, even if just on certain issues.  Some people like Obama and the Democrats for being less pro-war and better on civil liberties.  Some people like the Republicans for supposedly being better on lower taxes and less spending.  While these things aren’t reality and there are many who support the parties for opposite reasons, there are at least some sentiments for smaller government.

In Greece, the voters are looking for a year-round Santa Claus.  They believe in a free lunch and they want it.  The problem at this point is that the chickens have come home to roost.  They can no longer live off of past savings and the current productivity is very weak.  It is a massive Keynesian experiment gone bad, even though it was predictable.  A country cannot expect to thrive with a massive welfare state and high taxes.  When there are people who are 50 years old and retired on a big government pension, you know there is something not right.

The Greek voters are really mad at the politicians right now.  They are not sure who to blame the most at this point.  But it is a large majority of Greek voters who are asking for a free lunch.  They are asking for the impossible.  The politicians can keep making promises, but when they fail to deliver anything, then the people get mad.  As Margaret Thatcher said, the problem with socialism is that eventually you run out of other people’s money.  I suppose that can be applied to the Greek welfare mentality.

In the end, this election will mean nothing.  Perhaps the German government will fork out another bailout package one more time.  They are throwing resources down a drain.  Greece is going over a cliff, whether it is this month, next month, or next year.  It is inevitable that Greece will break apart from the euro zone and go back to printing its own money.

There really isn’t that much good news for the American economy.  There is the small wave of believers in the free market, mostly followers of Ron Paul.  There is also technology, particularly in the electronics industry, that continues to grow by leaps and bounds.  Everything related to government though is bad news for the economy.

There is one other item that is a little bit of good news.  It would not be considered good news for Keynesians.  It is good news for Austrian school followers and those who have a good understanding of the free market.  The good news is that debt levels for Americans is stable or even slightly down.

As I said, this is bad news for Keynesians, who believe that prosperity comes from people spending money.  They can never seem to explain why people don’t want to spend money in poor African countries.  If all you need for prosperity is for people to want to buy things, then the whole world should be wealthy.

For those who are not Keynesians and who believe in the workings of the free market, a reduction in personal debt is good news.  An economy grows and prospers from savings and investment.  If you didn’t have savings and investment, it would be very difficult for the average standard of living to increase.

Part of the reduction in personal debt has come about because of people giving up their houses in short sales and foreclosures.  While this is not exactly the ideal way for personal debt reduction, I suppose it still counts in a sense.  But aside from that, credit card debt has actually gone down for the average American since the fall of 2008.  According to this website, outstanding revolving consumer debt went down from $989 billion in the 4th quarter of 2008 to $787 billion in the second quarter of 2011.  I’m not sure what the latest statistics are, but I don’t believe they have changed much.  You can also read some interesting credit card statistics on this website.

The average American, even those who are working, realizes that the economy is not strong.  People have cut back, whether it is not taking a big vacation or simply cutting back on the daily Starbucks.  While people are probably not saving as much as they like, paying down credit card debt is almost the equivalent to saving.  This is actually what the economy needs.

The major problem of course is government, particularly the federal government.  It is offsetting the work and newly found frugality (relatively speaking) of the average American.  While the average American has stopped accumulating debt and is even paying it down a little, the federal government continues to accumulate massive debt and higher spending.

I think Americans are actually smarter with their finances than what many people think.  There is a certain intuition.  While Americans may get sucked into Fed-induced bubbles, like what happened in housing, they have enough sense not to get too bogged down in credit card debt.  Of course, some people are absolutely terrible with their money, but I am just talking about the average or median person.

In conclusion, an economy grows and standards of living increase due to prior savings and investment. Consumer demand only drives an economy in the short run.  You can’t consume what isn’t produced.  The key to wealth and prosperity is production and you can only get increased production through savings.  The average American is helping the economy in the long run by saving more and paying down debt.  The federal government is hurting the economy by spending more and increasing the debt.