There was a piece on LewRockwell.com discussing the Liberty Dollar.  It contains an interview with Bernard von NotHaus, who is the creator of the Liberty Dollar, which is supposed to be a private currency that is backed by a commodity.  In this case, the commodity is silver. Bernard von NotHaus has been convicted and even labeled a “terrorist”.  He will most likely spend quite a few years in prison.

From a libertarian perspective, von NotHaus should not go to jail.  It would be hard to mistake his currency for the bills that we regularly use for money.  For that, he is not engaging in fraud and he is certainly not forcing anyone to use his currency.  Therefore, if I were on the jury, I would have voted not to convict him.  Regardless of whether he broke a law on the books, I still would not have convicted him based on the power of jury nullification.

I have a certain admiration for people like von NotHaus.  It seems like he is fearless, although I’m sure he is not.  He is basically taking one for the team, so to speak.  However, I wouldn’t advocate that anyone do something like this.  It is just like not paying your income taxes.  You can come up with all of the reasons, legally and morally, for not doing it, but there is still a good chance you will go to jail.  You are better off fighting for liberty outside of prison in most cases.

I also have one major criticism of von NotHaus and it may have prevented him from going to jail.  One of the major reasons for his prosecution (and yes, I know it is all political) and his conviction is that he put a dollar denomination on his currency.  His certificates that were backed by silver said “5 dollars” or some other denomination on them.

The problem here is that the certificates labeled “5 dollars” were not really worth 5 American dollars.  The U.S. dollar is not fixed to the price of silver.  It is a floating price.  The certificate labeled “5 dollars” was really worth a certain weight of silver, which could be more or less than 5 dollars as most people know it.  It would depend on the price of silver.

The ironic thing is that von NotHaus talks about this about halfway through the story linked above.  When they are talking about a Mexican citizen named Hugo Price, von NotHaus criticizes his plan because “he doesn’t have a denomination on it”.  But shouldn’t that be the whole point?

If non NotHaus is so against the current monetary system, why is he trying to link up to it by putting dollar denominations on his currency?

If he had simply put the weight of the silver on his currency, then there is a good chance he could have avoided conviction, or even prosecution in the first place.  In addition, it would be more accurate and it would be beneficial in teaching people that it is the weight of the metal that should matter, not the denomination.

If his currency had simply said that it was worth so many ounces of silver, then it would have been a tougher case for the prosecution.  Instead, it is easy to convince a jury that his currency could easily be misleading as a 5 dollar bill was not really worth 5 dollars.  Although most holders of the Liberty Dollars probably realized that a 5 dollar bill was not really worth 5 dollars, one could still see how it could be highly misleading.

So while von NotHaus should not go to jail, he was not very smart in how he ran his operation.  He should not have competed directly with the government.  He should not have used the term “dollar”.  He should have just issued certificates for a certain weight in silver.

When I talk about the deep economic troubles facing America and when I talk about the inevitable bust/ recession that is coming due to the Austrian business cycle theory, I often add one caveat.  I say that we will inevitably have a deep recession unless there is some kind of major technological innovation.

While massive government bureaucracy and massive government spending impede the free market economy, technology continues to advance, albeit at a slower pace than if the government were removed.

Technology can often grow at exponential rates.  Witness the incredible technological revolution that is occurring right now.  Many people do not even realize how special of a time we currently live in.  The world today is vastly different from the world just 20 years ago.  The internet and technological advances have changed our world.  The lines of communication are wide open now.  There is a free flow of information that never could have been imagined just a couple of decades ago.

It is hard to believe that the iPad has only been in existence for a couple of years.  It is hard to believe that accessing the internet via a cell phone is a new thing within the last decade.  It is hard to believe that most people did not even have an email address just 2 decades ago.

Technology and growth can overcome a lot of human suffering.  While the iPhone is more of a luxury than a need, technology helps human life and vastly improves living standards in a short time frame.  Think of these devices that take filthy water and make it clean, drinkable water within minutes.  This can save millions of lives in third world countries.

Imagine if technology starts to take off with healthcare.  Imagine devices that can cleanse the human body of diseases.  Imagine sitting in a special chair that cures you of your ailments.  Something like this would make healthcare and health insurance a non-issue, at least politically speaking.  We wouldn’t have to worry about Obamacare or about Medicare going broke because we would all of a sudden have most of our healthcare needs met with cheap technology.

The internet is already revolutionizing education.  A young kid can learn far more from Google and Wikipedia in a day than he could learn going to a traditional government school.  If you really want to learn about a particular topic, search for it on Youtube and there may already be an instructor available for you to watch.  If not, you can surely learn about it by reading one of the billions of websites that now exists.

The U.S. Post Office is going out of business.  Regular mail is used less and less now.  We can just use email or text messaging.  We can post comments on Facebook.  If the government were to take away the Post Office’s monopoly on the delivery of first class mail, I’m sure Fed Ex and others would quickly fill the void.

The growth in technology can be endless.  The Industrial Revolution began to change the world in the 19th century.  Many people did not realize it at the time.  Their lives were improving, but they did not notice on a day-to-day basis.  But if you have growth every year, your living standard will go up significantly over time.

The same is true of technology today.  It is growing at an exponential rate.  Some years will be better than others, but it is reasonable to predict that it will continue.  This new technology can defeat the state. It can make the government irrelevant.  This is why you should not give up hope on human freedom.  While the current situation may look bleak, I believe that freedom is almost inevitable at this point.

Merry Christmas!  I hope you enjoy your holidays.  Do something for those you dearly love and do something nice for yourself.  Be thankful for the things you have and strive to do something new in 2012 that will make your life more pleasurable and more free.

I am hoping that my big Christmas present will come 9 days after Christmas when Ron Paul wins the Iowa caucuses.  While I am not banking on a Ron Paul nomination (yet), I am excited that his libertarian message is resonating with millions of Americans.

So whether you are religious or not, whether you celebrate Christmas for Christ, for Santa Claus, for giving gifts, or maybe all of the above, I hope you can find joy and celebrate the good things and good people in your life.

Thank you to all of you out there who read my blog.  Merry Christmas!

The Iowa Caucuses are only 12 days away as I write this.  I will share my thoughts on where things stand, how Ron Paul is doing, and how things could play out.

First, while Rick Santorum may do moderately well in Iowa, he has no shot at getting the nomination.

Second, unless Mitt Romney is caught in a serious crime or having an affair, then Jon Huntsman has no shot at getting the nomination.  Huntsman is an establishment candidate and right now the establishment is behind Mitt Romney.

The top three candidates right now are Mitt Romney, Newt Gingrich, and Ron Paul.  However, I do not completely discount Michele Bachmann or Rick Perry at this point.  I think Iowa will likely eliminate one of them from the race, although not necessarily officially.  Whichever one of them pulls off fourth place (or maybe fifth if Santorum finishes ahead of them), then that person will still have a chance.  Right now, I think Perry is more likely.  He has a lot of money and still has quite a bit of support.  Bachmann has been better organized in Iowa and if she finishes behind Perry, she should just quit.

While Gingrich was in the lead in a lot of polls for Iowa, his support has been slipping quite a bit in the last couple of weeks.  The other candidates have been going after his record and rightly so.  I think many Tea Party conservatives are finding out that Newt Gingrich is not all that conservative.  He has supported big government in many ways in the past, along with a global warming agenda with Nancy Pelosi.

Romney is obviously the favorite to win the nomination right now.  He has the backing of the establishment and even many Tea Party people are hedging their bets and starting to support him.  Of course, that just shows that some of the Tea Party people are worthless.  If there is one thing that unites the entire Republican Party, it is their opposition to Obamacare.  So the Republicans are going to nominate the guy who is the founder of Obamacare in Massachusetts?  Romney invented Obamacare before it existed.

And now, I’ve saved the best for last.  Ron Paul has continued to move up slowly and steadily.  His supporters (me included) are loyal and enthusiastic.  His supporters will make sure they go to the caucuses and the polls to vote for him.

Ron Paul has a good chance to win Iowa.  He is ahead in some polls and second in some others.  He absolutely has to win Iowa or come in a close second.  If he comes in a distant third, I’m not sure that he will be able to overcome that.

Eventually, he is going to have to break through that pro-war and pro-establishment mentality that grips so many Republicans.  If Paul can win Iowa, he all of a sudden becomes acceptable.  It is hard to believe so many voters think this way, but right now a lot of people like certain things about him, but don’t think it is socially acceptable to support him.  If they see that a large chunk of other people are supporting him, it might persuade them to take a closer look.

If the weather is bad on January 3rd in Iowa and the turnout is low, then that will favor Ron Paul.  His supporters will brave the weather.  The same goes for New Hampshire on January 10th.  The next few weeks are quite important as momentum can play a big role as we have seen over the last several months.

Ron Paul is breaking through and many people are listening to his message.  It is driving the establishment nuts, and for that, this campaign is a win no matter what the voting results turn out to be.

I can’t tell you how long I have been hearing people say that bonds just can’t go any lower.  I remember people telling that to Harry Browne on his radio show when he was discussing his permanent portfolio plan.  Just for a time frame, Harry Browne passed away over 5 years ago.

The 10-year yield is currently just under 2% as of this writing.  It was down to almost 1.8% just a few days ago.  Needless to say, mortgage rates are near all-time lows right now.

I am an advocate of the permanent portfolio plan, which consists of 25% long-term government bonds.  While bonds may seem like a terrible investment idea, they seemed like that 5 or more years ago too.  Yet bonds have performed quite well for the permanent portfolio.  They have also helped lessen the volatility of the plan.  In the fall of 2008, stocks and gold both did terrible and the bond portion helped keep the short-term losses down.

While I advocate the permanent portfolio, I do say that it is reasonable to speculate with a certain portion of your money, as long as it is money that you are willing to risk and willing to lose.  So the question remains, is it finally time to bet against bonds?

Bonds go up in value when interest rates go down.  In a recessionary/ deflationary environment, interest rates will probably go down as we saw three years ago during the major economic turmoil.  Of course, interest rates can also go up if there is a risk of default (see Greece and the other PIIGS) or if there is high price inflation (see the 1970’s).

While I think that higher price inflation is almost inevitable, I don’t discount the possibility of another deep recession.  It continues to be a tug-of-war between the two.  We may end up with an inflationary depression eventually, but I think one side will probably shine in the short run.

At this point, I am still not ready to short the bond market.  I think it is a good speculative play for day traders who get in and out quickly and play the swings, but I am not confident that interest rates will be going up significantly in 2012.  Aside from the threat of a recession, there is also the threat of the Federal Reserve.  The Fed can buy U.S. treasuries any time it wants.  The Fed literally has an unlimited amount of money.  I’m not sure that I want to bet on something going down in value that the Fed can buy at will, especially when the Fed keeps coming up with more tricks.

I think interest rates will go up eventually.  When they do, it will be a reflection of the Fed’s money creation.  It will be a response to price inflation.  It will be a response to a lower demand for money.  I doubt it will be like Greece where people fear a default.  Perhaps that day will come, but not in 2012.  It is amazing how long the Fed and the government can kick the can down the road.

The politicians in DC are supposedly arguing over an extension to the payroll tax cut.  The payroll tax cut is a reduction of the employee’s Social Security tax from 6.2% to 4.2%.  When the legislation was signed last year, it was effective for 2011 only.  The two major parties in DC (both for big government) were supposed to have an agreement to extend it by two months and now the Republicans won’t agree to that because they want it extended for a year.  There is also a dispute about how to pay for it, as though letting Americans keep more of their money has to be “paid” for.

If both sides were serious about helping the unemployment situation, they would be cutting the payroll tax for the employer portion, so that labor would be cheaper and businesses would be more likely to hire people.  I have discussed this before.

So what about paying for this?  The Republicans were originally pushing to build an oil pipeline as part of the extension of the payroll tax cut, as if one should have anything to do with the other.  Of course, the Democrats always want to tax the rich or tax something in order to “pay” for it.

If the Republicans really wanted smaller government, why couldn’t they put together a proposal with specific budget cuts to go along with the tax cut?  They could claim that the tax cut extension would then not increase the debt.  Some will say that the Senate won’t pass it or Obama will veto it.  But let that happen.  If the Republicans put out a bill that cut foreign aid to Saudi Arabia and African dictators and cut farm subsidies to farmers, wouldn’t that be rather embarrassing for the Senate Democrats to vote it down or for Obama to veto it?  The reason that the Republicans in DC won’t do this is because they are not really in favor of smaller government.

There is one more thing to mention about this payroll tax cut extension.  As of right now (December 20), there is no agreement.  People don’t know what their tax rate will be in just 12 days.  This is 2% of the paychecks of most workers.  This can mean over $100 per month for some families.

Robert Higgs talks about the Great Depression and that one of the factors was “regime uncertainty”.  While I believe that spending, regulations, and monetary policy play the biggest role in determining the strength of the economy, there is an argument to be made that regime uncertainty is playing a role too in our current economy.  People do not know what to expect.  How can people properly plan when they don’t even know what their paycheck will look like in a few weeks?

Personally, I hope the tax cut is extended.  The U.S. government is going over a cliff anyway.  I will take what I can get now.  We will have major trouble ahead with or without a payroll tax cut extension.

North Korea’s supreme “leader”, Kim Jong Il, has died.  There are scenes on television of people in North Korea breaking down in tears over the news.  It is hard to know for sure if these scenes are staged, but it is not difficult to believe that people would be that brainwashed.

Kim Jong Il ruled with an iron fist, but don’t think for a minute that that is the sole reason for the misery in North Korea.  A dictator can rule over people with brutality, but this is only possible by having the consent of the people being ruled.

This is not supposed to be a collectivist statement and paint everyone the same.  For sure, I’m sure there are a few people living in North Korea who want actual freedom and cannot speak up for fear of being punished or even killed.  However, for someone to be able to oppress a group of people like that, there is no question that the majority of the people there are giving their consent to be ruled.

The same situation exists in the U.S. and everywhere else in the world.  It is not hard to imagine Americans weeping if something happened to a politician in America.

While most Americans say they value freedom, they still consent to being governed.  Most people think we absolutely have to have government for certain things.  I am not just talking about the few minarchists who believe we need government for courts and police.  I am talking about the large majority who think the government should provide education, healthcare, business regulations (aside from those simply to protect against force and fraud), retirement, libraries, etc.

A government can only rule with the consent of the people.  If enough people change their opinion and believe that big government is completely unnecessary, then the government will eventually shrink or collapse.

The Berlin Wall fell in 1989 and the Soviet Union completely fell apart a couple of years after that.  Don’t think that Gorbachev was the reason.  I can credit Gorbachev for not using violence in the collapse, but I don’t credit him with breaking up the Soviet Union.  Gorbachev was a communist and I’m sure he would have been more that happy to continue the communist system.  But the system fell apart because of the vast number of people who no longer believed in the system.  People living in the Soviet Union realized that communism was a horrible way of life and they could see this by catching a glimpse of the relatively capitalist western countries.

It is hard to know what will happen next in North Korea.  Kim Jong Il’s son is supposed to be taking over.  If he is less oppressive than his father, then he can certainly make things better.  But ultimately, it is up to the people of North Korea.  They have to open their eyes and see that their neighbors to the south are rich and prosperous compared to them.  They have to realize that freedom is the answer to many of their problems, not another thug dictator.

It is the Christmas season and a lot of Americans are out doing their Christmas shopping.  Of course, on CNBC and other newscasts dealing with the state of the economy, we will hear reports about how strong or weak Christmas sales are.  The strength of sales will be used by the pundits to determine the strength of the economy.

This is really one of the great economic myths.  There is confusion about cause and effect.  Consumer spending does not help or improve the economy.  It is just about the opposite.  A strong economy is what allows people to spend.

So while there may be some correlation between spending and the economy in the long run, spending should not be used as a marker about how the economy is doing or how it will be doing in the near future.

You can take a family budget as an analogy.  Someone making a million dollars a year is most likely going to spend more than someone making $40,000 a year.  But you don’t use just their spending habits to judge how someone is doing.  If the person making $40,000 ups his spending from $35,000 per year to $45,000 per year, but is still making the same amount of money each year, this person is actually worse off because of the increase in spending.

The consumer can only consume what has already been produced.  But for there to be future production, there has to be savings and investment to fund it.  Just because there is a desire to spend money, it does not make products appear.  There has to be prior savings.

I’m sure the people of Ethiopia would all love to go out and buy a big house and a 55 inch big screen for their living room.  I’m sure they would love to eat gourmet meals every night.  The bottom line is that most people in Ethiopia cannot do this because they simply don’t have the wealth.  To ever get to this point, the country would have to adopt a system of strong property rights and the economy would have to grow to this stage through heavy savings and investment.

If you go Christmas shopping, you are not really helping the economy.  You may be helping one particular person or business, but you are actually consuming goods and services away from others.  There is nothing wrong with consumption if you are using money that you obtained through trade or labor.  You contributed something to society and you are using your receipt of contribution to get something in return.

The person who saves his money and barely spends beyond basic necessities is actually helping the economy more.  He has contributed something to society and now has a receipt for his contributions.  However, he is not cashing in on it.  He is leaving more for others to consume (which will mean lower prices on the margin).  He has contributed more to society than he is consuming.

Again, there is nothing wrong with consumption if it is backed by prior savings.  There is nothing wrong with shopping for the holidays and enjoying gifts.  But if you really want to help the economy, increase your savings and stop spending as much money.

The last Republican presidential debate before the Iowa caucuses has just wrapped up.  While there was nothing shocking that happened and there was no major game-changer, I still have some comments about a few things from the debate.

Ron Paul had another strong performance.  I thought his answer about congressional earmarks was strong, although I’m not sure if the average American will understand what he was saying.  Basically, Ron Paul votes “no” on all of these spending bills, but he tries to get funds earmarked for his district even though he is against the overall legislation.  As he pointed out, if the funds are not earmarked by Congress, then the executive branch will decide where to spend the money.  Paul’s actions in no way increases spending.  He is simply trying to get back some of the stolen loot for his district.

The best part of the debate was on foreign policy.  Ron Paul could not really be more different than the other Republican clowns (sorry, no disrespect to clowns).  He advocates a foreign policy of peace.  The others advocate a foreign policy of war and massive intervention.  They think America is the best country in the world and therefore Americans are morally permitted to run the world and dictate orders to other countries.

Michele Bachmann gets scarier every time I listen to her.  I used to have a little bit of respect for her, only because her economic views seem to be half decent.  However, I’m not even sure if she is all that good on economic matters.  Of course, how can she be a fiscal conservative when she will have to spend many trillions of dollars more if she wants to fight all of the wars she is promoting?

Bachmann has actually become one of the more frightening figures in my eyes.  She was saying that she was 100% certain that Iran would use a nuke if it obtained one.  That in itself is an absurd statement.  Iran is not run by a bunch of madmen any more than the U.S.  The Iranian politicians may be Keynesians and egomaniacs, but so are most U.S. politicians.  The Iranian politicians are not going to be foolish enough to casually use nuclear weapons as they know that it would quickly lead to their own demise.

Newt Gingrich is a good talker and I try not to underestimate his skills.  He is a good debater.  With that said, he is still a snake and he can’t be trusted.  When he was being questioned about Fannie Mae and Freddie Mac, he contradicted himself within the matter of 20 seconds.  He said that these government sponsored enterprises (GSEs) help people on the margin buy homes.  In another breath he said that we need to dismantle them.  So which is it Newt?  Do you want to get rid of these government agencies or don’t you?  I’m pretty sure I know where he would come down on this if he were elected.

Iowa will be interesting.  Ron Paul needs to win it or come very close.  The whole race is down to Romney, Gingrich, Paul, and one other candidate.  I think that one other candidate that has a chance to emerge is Rick Perry.  He is a poor debater, but he has a lot of money.  If Newt stumbles, the pro-war conservatives will have to turn to someone else, and that might be Perry.

Meanwhile, Ron Paul continues to deliver his libertarian message to millions of people.  Let’s hope the pro-liberty enthusiasm stays around for a long time after his campaign is over, regardless of the outcome.

Unless there is a major catastrophic event in the next couple of weeks, gold will not hit $2,000 per ounce before the end of 2011.  In fact, the price may will probably be below $1,600 at the end of the calendar year.

Gold had a major correction today (December 14).  It was down over $75 per ounce.  It is currently below the $1,600 mark.  This is quite bearish for the yellow metal in the short run.  The good news is that if you have been late to the game and are looking to buy some gold, there is some opportunity to do so.

It is hard to say where the bottom will be this time.  There are a lot of uncertainties out there, which can be good or bad for gold.  Today, it happened to be bad.  The euro has been extremely weak this week, which has meant a strengthening of the dollar.  This has led to a big decline in the price of gold in terms of U.S. dollars.  People wanted to get out of euros this week and they are turning to the U.S. dollar this time, instead of gold.

There continues to be a tug-of-war going on with the economy.  The monetary base has tripled in the last 3 years and most of this newly created money has gone into banks as excess reserves.  There is a tug-of-war between inflationary forces and a deep recession.  Both sides might end up pulling each other into the mud pit and we may end up with both eventually.

For a little while, it looked like we might see a little mini-boom, courtesy of low interest rates and easy money.  Today, it went the other way and it looks like we might be headed for a deep recession.  The 10-year treasury yield went down today and is pointing to continuing fear.

This roller coaster will continue until one side wins out (either way we lose) or until there is a big shift in Fed policy.  The Fed has been tight (monetarily speaking) since QE2 ended in June.  We will have to see how bad the economy will have to get before they entertain QE3.  While the best thing would be for the Fed to do nothing and the government to dramatically cut spending (which would trigger a recession), I don’t see that as a likely outcome right now.

I don’t like making predictions, but I’ll do it anyway this time.  I think there is an 85% chance that gold will be higher (in terms of U.S. dollars) one year from today than it is now.  If the price of gold is lower in one year than it is today, then I think there is a 99% chance that we will be in a deep recession at that point.