One of the most popular blog posts I have written was on “Collecting Nickels“.  I can see the statistics and this particular post has been read a lot compared to other posts on my blog.  That means that either it is not a widely discussed topic on the internet or a lot of people are searching it.  If you type “collecting nickels” into google, my post is on the second page of ten.

In the post, I say that it is the one investment you can make that is a hedge against inflation and deflation at the same time.  It is a hedge against deflation because it is the same as holding cash.  Your purchasing power grows with deflation.  With short-term interest rates right now at a fraction of a percent, the interest you would lose from not having it in a bank is negligible.

It is a hedge against inflation because of the metal content of the coin.  If there is massive price inflation ahead, then metal prices will most likely go much higher.  The metal content of the coins will increase and the coins will be worth far more than five cents.

So what about pennies?  Pennies are actually quite similar.  However, I see less attraction trying to collect pennies because it is even more bulky than trying to collect nickels.

There is a story on “Penny Hoarders” by ABC News.  They ran a full story on it on “Nightline”.  This story covers some serious collectors.  This is a business to these people.

The story says to collect those that are dated 1982 or before.  The reason is because of the metal content of the pennies.  Pennies dated from 1982 and earlier are made with 95 percent copper.

This story also says, ” In what could be the biggest legislation to hit the U.S. Mint in 50 years, officials are now looking at the composition of pennies and nickels and considering an overhaul.  If the laws change and the mint decides to abolish the penny, people would be free to melt them down for the copper.”

Regardless of whether the law is changed, we will see Gresham’s law take over and we will see older pennies and all nickels slowly go out of circulation.  This is a very similar situation to pre-1965 dimes and quarters, which are made out of silver.  They are held by people investing in silver.  Holders of these silver coins would rather not melt them anyway, because they are easily identifiable as silver and they are in small denominations.  I have written before on this subject too.  I could see melting pennies as more attractive because of the low value of the metal content as compared to silver.

I am not sure that it will matter if the law is changed.  Either way, if you have the time and patience (and space), go ahead and start collecting pennies along with your nickels.  Pennies are more difficult, not just because of the space required, but also because you have to sort out the pre-1983 ones.  However, it is practically a no-lose investment.

The Republicans and Democrats in DC are bickering over the extension of the payroll tax cut that was enacted for this current year.  While both sides say they want to extend the tax cuts, the Democrats want to expand it further and “pay” for it by putting a “surcharge” of 3.25% on people making over a million dollars.

Most of the Republicans are full of it, but they are refusing to blatantly raise taxes as they know what happened to George H. W. Bush in 1992 after he broke his pledge of “no new taxes”.  Meanwhile, the Democrats do not hide their socialism and class warfare as they want to increase income taxes on high-income earners.

As the article linked to above says, Harry Reid said that Republican opponents “insist on helping the very wealthy while turning their back on the middle class.”  Ok, if Reid were talking about Republicans bailing out banks or giving big contracts to military companies, then he might have a point.  But Reid is talking about not raising taxes on high income earners.  So Harry, for anyone who does not believe that the already high income taxes on high-income earners should be raised, you consider that helping the wealthy at the expense of the poor?

Of course, never in a million years could the Democrats advocate something without “raising taxes on the rich”.  Never could they actually come up with something to cut out of the budget.  They really are a bunch of socialists, but that in no way should imply that the Republicans are any good (with the exception of a very few like Ron Paul).

If I were in Congress, I would vote to extend the payroll tax cut.  However, I would vote “no” if it meant raising any other taxes (unless those taxes were specifically for members of Congress).  While spending should be cut dramatically, I think that any tax cut we can get, we should take.  It is just allowing us to keep a little bit more of our earnings.

As far as helping unemployment, this won’t really do much.  As I have said before, if they really wanted to help create jobs and lower unemployment, then the tax cut would be for the employer portion of the payroll tax.  By cutting taxes for employees, it gives a raise to people who are currently employed.  It will only marginally help those unemployed if it doesn’t actually hurt them.  If taxes were cut for employers, it would decrease the cost of hiring labor and there would be some net improvement in employment on the margin.

If the Democrats got what they are advocating, it would just hurt the economy more.  It would mean less money on the margin for high-income earners, who are often the employers.

All of this talk is more class warfare by the Democrats and more posturing by the Republicans.  Neither side is advocating any significant cuts in spending, which is really what we need.  This economy will not have a sustainable recovery until government spending is cut dramatically.

American taxpayers and holders of American dollars got the news today that they are getting ripped off again.  Not that many people pay attention, but the Fed announced today that it will be providing liquidity for the European financial institutions.  The stock market loved the news and soared.

It wasn’t enough that the Fed bailed out American financial institutions in 2008.  It wasn’t enough that they subsidized foreign banks and foreign governments.  Now they are doing it again.  The Fed is acting as a lender to European banks.  Americans and holders of American dollars (are you paying attention China?) are subsidizing European banks.  In a sense, Americans are actually subsidizing the irresponsible European governments and their welfare recipients.

The main reason that the European banks are in so much trouble is because they stupidly bought government debt from countries like Greece and Italy.  Now that these countries are on the verge of default, the banks in Europe are in major trouble.  Here comes Helicopter Ben and the Fed to the rescue.

The Fed teamed up with the central banks of Europe, Canada, England, Switzerland, and Japan, although it is likely that it will be the American central bank that does most of the subsidizing.  I guess Germany could not serve as the host any more.  The parasites have to keep sucking the hosts dry before moving on to someone else.

While this might temporarily save the European banks, it kicks the can down the road again.  It props up the profligate spending of countries like Greece.  These countries should declare bankruptcy and they should be forced to dramatically cut back on their welfare states.

With the Fed essentially subsidizing loans to European institutions, it will once again harm the American economy.  It is another misallocation of resources.  The voluntary free market economy in the U.S. (at least what’s left of it) is starving for capital and investment.  With the Fed doing this move and others like it, it is hurting the overall savings pool.  This hurts economic growth.  In order for the economy to grow sustainably, there must be savings and the government/ Fed are not allowing this to happen.

Nothing should be a surprise any more.  If there is one lesson from today, it is that the future is unpredictable.  I continue to say that we can’t predict the economy and investments with any absolute certainty because the economy is made up of millions of people acting.  In this case, the human action is just coming from a few elitist individuals who are affecting virtually the entire world economy.

As Ron Paul would say, “End the Fed.”

Since it is political season and a great libertarian happens to be running for president, I am spending a little more time than usual on here discussing politics, rather than purely economic and investment issues.  With that said, here is a little report card on what is happening.

Herman Cain is just about done.  A woman has come out saying that Cain had an affair with her for 13 years.  While Cain originally denied it, his lawyer was a little less convincing with his statement.  The latest report is that Cain is reassessing his run for the presidency.  By the time you read this post, perhaps he will be done.

As I have said several times before, Cain is a jerk and he is a moron.  People could not see the first part about him before.  They were starting to see that he wasn’t that bright.  Just watch this video on his discussion about abortion with John Stossel.

Rick Santorum has no chance, and for good reason.

Jon Huntsman has almost no chance.  If Romney weren’t in this race, he might have a shot as the establishment favorite.  But I just don’t see Huntsman going anywhere right now.  I am not 100% writing him off, but I am 99% writing him off at this point.

The same can be said for Michele Bachmann.  I am mostly writing her off at this point.  While I despise her foreign policy, I understand that many Republicans do not.  She can also be quite articulate on economic matters.  The problem for her is that people don’t think she can beat Obama.  She doesn’t have as much money as the other top candidates and she can’t seem to get people excited the way she did 6 months ago.

That leaves four people: Mitt Romney, Newt Gingrich, Rick Perry, and Ron Paul.

Perry keeps sticking his foot in his mouth over and over again.  He also sounds too much like Bush (the accent).  I think people want to like him, but they don’t think anyone else will.  While I think Perry is a fraud and he was exposed early on in the debates for his big government policies on several things, he is still going to have an appeal to many Republicans.  He still has a lot of money.  While he is down, I am not counting him out yet.  If Newt implodes, we may see Perry surge again.

I still think there is a good chance Newt will implode.  He is a good debater.  He is good at fooling people.  But with the internet, there are certain things he can’t hide.  He is also questioned by conservatives for his past personal history.  He is also divisive, much like Hillary on the other side.

Romney is the establishment candidate.  He is a pure politician.  He will say whatever it takes to get elected.  He does not have the personal problems that some of the other candidates have.  He is a Mormon, but that will only bother a small number of religious conservatives in the primaries.  He has not been able to break above 25%.  So-called conservatives like Sean Hannity are hedging their bets.  They are not coming out against Romney.  They are being nice to him in anticipation that they will have to support him if he becomes the nominee.

Then there is Ron Paul.  He is polling quite well in Iowa.  He has to get at least second place (or within a percentage point of second place) to still have a shot at the Republican nomination.  Actually, he really almost needs to win Iowa to get the momentum and the recognition.  He needs to keep talking about foreign policy.  As Tom Woods has said, nobody is going to be tricked into voting for Ron Paul.  He needs to articulate his position the best he can and hope that he changes enough minds to give himself a chance.  The good news is that he has quite a bit of money and his supporters are very dedicated.  His poll numbers may or may not go up, but they will not likely go down.

Paul is not running for re-election in Congress.  He can focus most of his attention on this race.  He can stay in it until the end.  I still don’t know if he can win, but he is sure making things interesting.

Over the weekend, there were 24 Pakistani troops killed as the result of NATO bombings.  It is not all that well known that the U.S. government is at war with Pakistan, at least in a sense.  While the governments get along to a certain extent, the U.S. government has been bombing Pakistan and killing innocent people for a while now.  While it isn’t an outright occupation like we see in Afghanistan, it does tend to irritate the people living there.

Many of the facts of what happened over the weekend are still up in the air.  Regardless of what happened, the incidence has angered a lot of Pakistanis.  The government of Pakistan closed off supply routes that the U.S. military relies on to transport supplies into Afghanistan.

This whole situation is quite important as it relates to U.S. foreign policy.  This can have a big effect on the economy, which can have a big effect on your investments.

While I don’t claim to be an expert on foreign policy, I do know that these supply routes between Pakistan and Afghanistan are quite important to the U.S. military in its efforts in Afghanistan.  If Pakistan keeps all routes closed, it will make it even more difficult to fight the war.

I see one of three scenarios happening from all of this.

The first scenario is that Pakistan takes a hard stand and does not let any American supplies cross borders.  This makes it too difficult for the U.S. to fight a war in Afghanistan and the U.S. military pulls out.

The second scenario is that Pakistan takes a hard stand and the U.S. government retaliates by escalating the war in Pakistan.  This scenario could be very dangerous.

The third scenario (and probably most likely) is that the Pakistani government talks tough against the U.S. and maybe even symbolically makes the war effort a little tougher for Americans.  However, the Pakistani government, while talking tough, still does Washington DC’s bidding (in secret) as the U.S. government continues to use bribes in an attempt to get what they want.

I am not making any big predictions on what will happen with Pakistan, but it is something to keep an eye on.  It will have major effects on the overall foreign policy of the U.S. and it will eventually have economic effects one way or the other.

Martin Luther King Jr. did not say, “I have a dream that one day we can join hands so that we can have greater economic growth.”

Libertarians have morality on their side and they should not be afraid to use it.

There was a Republican presidential debate this evening that was hosted by CNN.  The main topic was foreign policy.  Wolf Blitzer was the moderator.  I think he actually does a reasonably fair job when you compare him to most of the rest of the mainstream media.

The participants of the debate consisted of 7 pro-war candidates and one peace candidate.

Jon Huntsman, while no peace candidate, is a little less awful on foreign policy than the rest of the other pro-war candidates.
Rick Perry is still a horrible debater.
Mitt Romney is still an establishment stiff.
Rick Santorum is still irrelevant.
Michele Bachmann is still far worse on foreign policy than she is good on economic issues.
Newt Gingrich is still a snake.
Herman Cain is still dumb as a rock.  If you don’t think so, just ask Cain if he is dumb as a rock and he will answer that he has to check with his expert advisors first before he makes any judgement.

Then there is Ron Paul.  He is the peace candidate.  He was absolutely brilliant tonight.  He may not be perfect in his delivery, but he was driving every point home.  His words were accurate and well put.  His analogies were great.

Gingrich was talking about how we have to distinguish terrorism from criminal acts.  Who will decide this?  Gingrich?  The word terrorism is thrown around by Republicans as much as the word racism is thrown around by Democrats.

There was a report that came out of Missouri in 2009 from the Department of Homeland Security that was labeling people as potential terrorists who were “right-wing extremists”, veterans, and those who supported third-party candidates.  If they are terrorists, then according to Gingrich, you can just go ahead and execute them without any proof or any trial.

I loved Ron Paul’s response to Gingrich’s comment about Timothy McVeigh.  Paul said that the government can install video cameras in the homes of every American in an attempt to prevent wife beatings and child abuse, but then the American people are the victims.  This was a great analogy that he made.  He was pointing out that Gingrich’s policies would turn us into a police state (if we aren’t there already).

While many pro-war Republicans will despise Ron Paul after the debate, his performance probably changed a few more minds and opened a few more eyes.  He is chipping away.  Also, I’m sure there were probably a few Democrats out there that liked what he was saying and will perhaps start paying more attention to what he is saying on economic issues.

I still don’t know if Ron Paul has a chance to win the nomination.  He is doing well in polls in Iowa.  He is in this thing for the long haul.  He will continue to change minds and influence the debates.  This is very encouraging for libertarians.

The big news today is that the so-called super committee could not come up with $1.2 trillion in “cuts” (see articles here and here).  The stock market went down significantly today and many are blaming its poor performance on the news.  This is a tough sell though, given the major volatility of the market lately.

This whole super committee was a joke.  It was put in place when the Republicans sold out on raising the national debt ceiling.  It was kicking the can down the road.  They just kicked it again today.  Now, automatic cuts are supposed to happen.  Whether they will or not, we shall see.

The super committee was supposed to come up with $1.2 trillion in cuts.  This was a joke to begin with.  This is over a 10 year period.  The government could cut $1.2 trillion from this year’s projected budget and the budget still wouldn’t be balanced.  Spread out over 10 years, it would only be $120 billion per year.  And these aren’t even really cuts.  They are just cuts in the projected spending, which is of course projected to increase.

Now here is the biggest joke of all.  The reason the super committee supposedly failed was because they couldn’t agree on the right amount of new “revenue enhancements”.  This is lingo for tax increases.  The Republicans were already willing to agree to some tax increases.  The Tea Party should be so proud.

The Republican hacks in DC were not labeling these tax increases.  They were saying they wanted to eliminate some loopholes and deductions.  One example is the deduction for the interest on your home mortgage.  It doesn’t really matter whether you call it a loophole or a deduction because the bottom line is that it is a tax increase.  By eliminating certain deductions, it will mean more people will pay more in taxes.  That is a tax increase.

The best part about this whole thing is that they consider raising taxes a spending cut.  We are truly living in a bizarre world.  So I guess the politicians in DC could just double all tax rates and claim that they have cut spending by $2 trillion.  This is what we are dealing with.

Anyone who favors small government who is still supporting and voting for Republicans on a wide scale is simply delusional.  They never learn.  They are Einstein’s definition of insanity, doing the same thing over and over again and expecting different results.

I am not talking about people who support Ron Paul.  I am talking about people supporting most of the other politicians in DC.  The Republicans in DC do not want small government any more than Obama wants to restore peace and civil liberties.

The politicians in DC will continue to spend until there is some kind of a major revolt or until the laws of economics forces the situation (like what is happening in Greece).  For now, they can still rely on the Fed and the Chinese to buy U.S. government debt.  When the dollar sinks more and eventually faces the threat of hyperinflation, the Fed will have to make a choice.  If and when it chooses not to buy any more government debt, then Congress will have to massively cut spending.  Be prepared.

Usually when I ask a question as the title of my blog post, I go on to answer the question.  With this post today, I am actually struggling to answer this question with a solution that is consistent with my strong libertarian beliefs.

On Monday, November 14, I wrote a post on the problem of the FDIC.  I am completely against having an FDIC that is run by government.  I would not be against the idea of having banking insurance if it took place through the voluntary marketplace.  As I previously said, I am in favor of abolishing most government programs and departments almost immediately.  However, I see major problems with eliminating the FDIC immediately as it would probably cause bank runs almost instantly and really would threaten to take down our whole financial system.

I am certainly in favor of dismantling the current financial system, as it is bogged down with bureaucracy and major government interference.  But I don’t want to see it happen with total chaos as millions of people lose the money that is in their checking accounts.

So how do we end the FDIC in an orderly fashion?  We definitely need some kind of a market solution.  We need to somehow phase it out.  The post office is being phased out.  Email and the internet are helping to do this.  The loosening of previous regulations and allowing companies like FedEx and UPS to compete was a big step.  We need to continue to free up competition.  In the case of the post office, the last step is to end the monopoly on delivering first class mail.  Private enterprise will eventually close the government post office.

It is a little harder with banking.  Banks should be allowed to start up without having to abide by government regulations, other than those that strictly relate to force or fraud.  Even here, these laws should come from the state and local levels.  They should not come from Washington DC.  These banks would not have the backing of the FDIC.  The problem here is that it would be difficult for these new banks to thrive.  The FDIC acts as a subsidy to the current banks.  It allows them to take excessive risk and not being held accountable by their customers.  Customers don’t really care who they bank with from a safety perspective as they know the FDIC will bail them out.

If legal tender laws were also repealed (a very important thing), then more people might start using gold, silver, or other currencies.  Banks could then operate the way they should in a free market environment, acting as a storage house.  Banks would probably not pay depositors interest on their money, unless the depositor was in agreement that their money was being lent out and that it might not be available upon request.

The amount the FDIC insures was increased three years ago, during the financial crisis, from $100,000 to $250,000.  This needs to stop.  If the FDIC would just stop raising the amount, it would eventually be phased out by the Federal Reserve’s inflation.

So I am still not sure how to answer my question of how we fix the whole situation.  It is quite astounding because for all of the things I read on LewRockwell.com, Mises.org, and other libertarian sites, I have not really seen this addressed.  The only idea I remember seeing was that of George Reisman.  He advocated that the Fed increase the monetary base and capitalize the banks, but then force the banks into having 100% reserves (no fractional reserve lending).  I don’t like this idea for the long term, but I do give him credit for being one of the few people to offer a solution, at least for the short term.

One thing I do know is that the free voluntary market has a way of solving problems.  We need to repeal as many government laws as possible, particularly those in DC.  Laws should exist to protect people and their property from force or fraud.  From a constitutional standpoint, most of these should be coming from the state and local level.  Once these regulations are repealed, the free market will find a way of providing honest banking services.