We often hear that libertarians advocate the gold standard.  This is certainly true, but it is important to understand why and what the true position is for a radical free market advocate.

As a libertarian and a follower of Austrian free market economics, I am in favor of a completely free market in money and banking.  Would we be better off under a government run gold standard?  Probably yes.  Would we be even better off if the government didn’t involve itself in money at all?  Yes.

For someone who holds radical free market beliefs, then the maximum role, if any, that the government should play in the money business is to protect people from force and fraud.  Anything beyond this and the government will use this power for evil purposes.

The reason that you will hear so many libertarians advocate a gold standard is because gold would most likely be the money of choice in a free market.  Gold and silver have been used as money for thousands of years.  Paper money is a recent thing in a long history of money.

Gold was chosen by the market to serve as money because of its properties.  It has a high value (this is why bricks or iron are not used as money).  It is divisible without ruining the value (this is why diamonds aren’t used as money).  It is durable.  It has longevity (this is why milk is not used as money).  For these and other reasons, gold (and to a lesser extent silver) have great qualities to be used as money.

The most important quality of gold and silver to distinguish them from paper currencies is that they cannot be created on a computer or on a printing press.  The government can simply create fiat money out of thin air.  To obtain gold and silver, it usually involves intense labor and the supply tends to be very limited.  So while you can have inflation of gold or silver (an increase in the supply), it is not controlled by politicians.

So as libertarians, we really shouldn’t advocate a gold standard as it might imply that we think the government should manage it.  For a truly free market, it is the marketplace that should decide on what will be used as money.  Most likely, I would bet my fiat money that the market would choose gold again.

Below is my libertarian reading list.  I am only mentioning some of my favorite libertarian books.  There are now thousands of libertarian books to choose from.  I am just listing some of my favorites that have had an influence on me in the past.

Atlas Shrugged by Ayn Rand
This is my favorite fiction book and maybe my favorite overall.  I am not a big fan of Rand’s writing style.  I don’t completely agree with her philosophy.  I don’t think the book is that realistic and I think it gives a little too much credit to businessmen.  With all of that said, it really is a must-read for any libertarian. It will take you a while, but it really is a great journey.

Fail Safe Investing by Harry Browne
For anyone who follows this blog should know, I am a big advocate of putting some of your money in a permanent portfolio as outlined in this book.  I’m not sure if the book is libertarian, but it is written by a great libertarian.

Why Government Doesn’t Work by Harry Browne
It’s Harry Browne.  Enough said.

The Great Libertarian Offer by Harry Browne
This book is more important than ever.  As libertarians, we need to offer radical solutions to today’s problems.  We need to make Americans an offer they can’t refuse.  Would you be willing to give up your favorite federal programs if you never had to pay income taxes again?

How I Found Freedom in an Unfree World by Harry Browne
This is a self-help book that may be a great benefit to some people who feel trapped in their life.

How You Can Profit From the Coming Devaluation by Harry Browne
The fist 70 pages of this book was published again under the title of “99% of All You Need to Know about Money“.  If everyone read and understood this book, then we wouldn’t have the monetary problems that we have today.  It is very basic and very informative.  Don’t worry that this book was written so long ago.  Just add a few zeros to the numbers and it’s like it was written today.

Economics in One Lesson by Henry Hazlitt
A good primer on economic thinking.

The Law by Frederic Bastiat
Although this book was written over 160 years ago, it is a good short book on economics and liberty.

The Real Lincoln by Thomas DiLorenzo
It is important for all libertarians to be educated in the War Between the States (more commonly known as the Civil War).

Whatever Happened to Penny Candy by Richard Maybury
This is a great basic book on economics.  Although it is appropriate for high school students, most adults would benefit tremendously from reading it.

Meltdown by Thomas Woods
This is a good explanation of why the economy crashed in 2008.

Rollback by Thomas Woods
I will admit that I haven’t read this yet.  However, Tom Woods is great.  I have read excerpts and all of the libertarian reviews I have read have been complimentary to say the least.  I don’t think you can go wrong with Tom Woods.

End the Fed by Ron Paul
I can’t complete a libertarian book list without including Ron Paul.

This list is by no means complete.  It is just a few of my favorites that I thought I would pass along.  Overall, I would recommend most everything by Harry Browne, Richard Maybury, Tom Woods, Robert Murphy (who I didn’t mention above), and Ron Paul.

Ron Paul’s chances of becoming president are not great.  He could beat Obama, but he will have difficulty getting the Republican nomination because of the pro-war mentality of a majority of Republicans.  However, Paul’s chances are a lot better than they were the last two times he ran for president.

I was having a discussion with a libertarian friend of mine the other day.  He is fairly radical, like I am.  Our topic of discussion was the economy and a Ron Paul presidency.  Hypothetically speaking, if Ron Paul were elected president and served for 4 years, what would happen?

My friend is afraid that the Republican establishment would immediately surround him and try to influence his cabinet picks and his policy.  I have no doubt they would try, but that is one of the reasons that I support Ron Paul and almost never support anyone else.  He has proven himself time and time again to ignore lobbyists and the establishment.  He has kept his principles.  Reagan could not do this.  You can see this by his pick for vice president and his cabinet picks.

If Ron Paul were to get the Republican nomination, it is imperative that he pick a vice presidential candidate who is at least as radical as he is.  If the CIA knocked Kennedy off, then I cannot imagine they would be happy about a true anti-establishment candidate.

My first thoughts were, that we might not actually want Ron Paul elected.  Perhaps it would be better if he came really close, but lost.  This way, when the depression hits, he would not get blamed for it.

But I was talking and thinking through this with my friend.  If we have a President Paul, it would mean that public opinion had changed significantly.  It means that the economic depression was probably already in full force.  It means that, for those who supported him, they would be forgiving of an economic depression because they would realize that he didn’t cause it.

Ronald Reagan took office in 1981.  The country went through deep recessions in his first couple of years in office.  Then the economy started to recover.  Reagan won re-election by a landslide.  The situation we are in now is a lot worse than when Reagan took office.  Price inflation is not as bad yet, but the level of malinvestment is probably worse and the debt and so-called obligations are much worse.  Regardless of what the government does, there will have to be a severe correction to flush out all of the previous malinvestment.

In my discussion with my libertarian friend, he pointed out that the economy could recover in 6 months if dramatic changes were made.  He is usually a pessimist.  I am not sure I agree with 6 months.  It could be longer because of the huge debt and the huge misallocation of resources that has already taken place because of the government and Fed policy.

So let’s say that Ron Paul becomes president.  If he governs like Reagan, then the economy will continue to struggle.  But what happens if a President Paul makes significant changes?  Some things he can do just because he is president.  He can stop the wars.  He can pardon all non-violent drug offenders convicted in federal courts.  Essentially, he could end the federal war on drugs, at least while he’s president.

The president is not a dictator, even though the last several presidents have acted like it at times.  A President Paul could not simply eliminate all unnecessary spending.  Congress could override his vetoes. But if Paul were elected president, we have to believe that there had been a major shift in popular opinion.  He would have a mandate to cut government.  He could use his platform to influence Americans, who would in turn influence their congressman and senators.

If a President Paul could make significant cuts, the economy really would recover fairly quickly, even with all of the debt and malinvestment.  Let’s say that he ended all of the wars and ended all foreign aid.  Let’s say he ends several departments that are unconstitutional.  Let’s say he can get rid of the departments of education, labor, energy, housing, and agriculture.  Let’s say that he can balance the budget and still reduce taxes.

The economy is starving.  The economy needs savings and investment.  This is how an economy grows.  The government is sucking up resources with its huge spending and borrowing.  Since the fall of 2008, Americans have saved more and paid down debt.  Unfortunately, the federal government has done the opposite, which has negated the benefits of what a lot of Americans have done.  The government is using resources that should be used as savings and investment to increase our future standard of living.

If a President Paul, or any other president, were able to get spending way down, the economy would recover.  If the budget were cut from $4 trillion to $2 trillion, this extra $2 trillion a year would be used to increase capital investment.  It would lead to an increase in our standard of living.

I like to use the example of Germany and Japan after World War II.  These countries were devastated by the war.  After the war, the two countries adopted relatively free market policies.  Miraculously, because the governments did not interfere with their economies, the two countries saw tremendous growth and eventually became two of the richest countries on earth.

This whole discussion is not a prediction of any kind.  I am simply pointing out that, given a dramatic decrease in the size and scope of government, the economy could recover quite quickly and we could once again see a strong rise in our standard of living.

Here is a chart of the adjusted monetary base:
http://research.stlouisfed.org/publications/usfd/page3.pdf

Here is a chart of the monetary base with a longer time frame.  It shows the picture even clearer:
http://research.stlouisfed.org/fred2/series/BASE

With the ending of QE2, we should expect the monetary base to stabilize.  There will still be mild fluctuations.  As of right now, there has been no announcement for QE3, even though some analysts are calling for it.

Bernanke really is in a box.  What will he do when the economy visibly turns down again?  Why will QE3 accomplish what QE2 didn’t?  What happens if price inflation goes higher while the economy continues to struggle and unemployment stays high?

Ron Paul asked him this question one time.  He essentially asked Bernanke what he would do if we have 10% (price) inflation along with bad economic growth.  Bernanke responded that that scenario would be unlikely.  Of course, Bernanke has been wrong with just about everything else, so why stop being wrong?

The federal government and the Federal Reserve continue to make things worse.  They not only do not do the right things, but they do the opposite.  The policies coming out of DC will continue to make things worse.  The only way we will see a robust recovery is if the government dramatically cuts spending and the Fed stops buying huge amounts of government debt.  The two go hand in hand.  We need private investment and savings, not more government spending and money creation.

QE2 is almost over.  If the Fed is going to create significant amounts of new money out of thin air, then we will move on to QE3 or some other name.  Either way, there is a lot of uncertainty about what the Fed will do and what is going to happen.  There are a lot of variables to consider.

Today was another big down day for the stock market.  Oil was down almost 5%.  The dollar strengthened considerably against the other major currencies.  The one notable thing is that, despite the strong dollar, gold was actually up a little today.

It is anyone’s guess as to which way things will go in the next couple of months.  Some of the variables include the Fed’s decision on QE3, Greece, the debt ceiling, revolts in the Middle East, and war, just to name a few.  There is, of course, always the possibility of some other unforeseen event occurring.

While I maintain my prediction that the Fed will continue to help Congress in a backdoor default by devaluing our money, the short term outlook is far more uncertain.  If the Fed starts pumping more money or if the banks decide to start loaning out their massive amounts of excess reserves, then we will see significant price inflation sooner, rather than later.

If the Fed stops its money creation for a while and the banks continue to hold their excess reserves with the Fed, then we could see consumer prices stabilize and we could see a significant drop in the stock market with a strengthening dollar.

Right now, investors should just concentrate on wealth protection.  I would recommend that at least a majority of your investments go into the permanent portfolio fund, the mutual fund PRPFX, or something similar.  For the rest of your money, I would put a little extra into investments related to precious metals and I would hold some cash or cash equivalent that you can use to buy up bargains later, if that time comes.

This will continue to be a roller coaster ride.  There will be ups and downs with stocks, gold, oil, the dollar, price inflation, and even real estate.  For the longer term, I still expect more inflation from the Fed and would not be surprised to see stagflation like the 1970’s.  If that is the worst that we get, we will be very lucky.  I do not expect the Fed to go to hyperinflation.  I think it will choose a depression over the complete destruction of the currency.  At that point, Congress will be forced to cut spending.

I watched most of the Republican presidential debate last night.  There were seven participants, which included Ron Paul.  The media, while paying more attention to him, continues to discount him being a contender.  I think he will have trouble overcoming the pro-war majority in the Republican Party, but it would not surprise me if he won some primaries/ caucuses.

Ron Paul made a better showing than most would have imagined four years ago.  He is starting way ahead from where he was then.  Most people outside of his district and outside of the libertarian movement had never heard of him before 2007.  Now he is a household name with a big following.  With the internet and his new notoriety, he has gained even more of a following since then.

One thing I found interesting about last night’s debate was the stance the candidates were taking on war.  Ron Paul is, for sure, the only anti-war candidate.  He is the only one who would begin troop withdrawals immediately.  But I couldn’t help but notice that the other candidates were far less hawkish than what we saw in 2007 and 2008.  Part of this may be the candidates themselves.  There is no John McCain or Mike Huckabee.  A little part of it might be because of Ron Paul.  In addition, these candidates are running against Obama and do not feel the need to defend Bush.

One other significant factor in the less hawkish war stance is public opinion.  The majority of American people have soured on the wars in Iraq and Afghanistan and most of them were never on board for Libya.  Perhaps the Republicans are starting to realize that they can’t advocate endless war and still expect to win.

One thing that surprised me about the debate was just how nice everyone was.  If I have one criticism of Ron Paul from last night, it would be that he is just too nice.  I think the candidates should be attacking Romney (the supposed front runner and establishment favorite).  They should point out that the Republican nominee cannot be someone who invented Obamacare before Obamacare even existed.  The other candidates should be asking if this election should be Obamacare vs. Romneycare, or about a real choice.

I think Ron Paul should also try to distinguish himself more (if that is possible) on economic issues.  He spoke about monetary policy which no other candidate touched and that is good.  But he is letting these other people get away with deceiving their audience with generalities.  Just about every Republican candidate is saying we need to cut spending and cut taxes.  But where, specifically, would they cut?

Since the debate moderators won’t hold them accountable, I think Paul should point out that these calls for spending cuts are not specific.  He should say that he would abolish the departments of education, agriculture, housing, labor, energy, etc.  He would end all foreign aid.  He would end all corporate welfare.  Try to force the others to take a position.

Overall, Ron Paul is a great representative of the libertarian philosophy.  Libertarians should be so thankful that we have someone who is consistently on message and who is principled and intelligent.  His many years of advocating liberty has made him into one of the best.  It is not easy in a debate when you have no idea what specific question will be asked.  He can hold his own and he will continue to help educate others on the benefits of a free society.

If I were a betting man, I would bet that Ron Paul will not win the Republican nomination, but he will surprise many.  He will probably come in second or third and he may actually win some states.  I don’t completely discount him taking the nomination, but it is still a long shot at this point with the party being so pro-war.  If Paul did win the nomination, he would have a good chance at beating Obama.

In conclusion, if Ron Paul takes second place or better in the primaries, I think libertarians should be very optimistic about the future.  If he places third, then I think there is reason for some optimism with the realization that there is still a lot of work to do.  If he does worse than third, then Galt’s Gulch becomes more appealing (a reference to Atlas Shrugged).  I think we will be pleasantly surprised.

Many in the libertarian camp believe that the U.S. dollar is headed towards zero.  Some of these same people also believe that real estate has yet to hit bottom and may stay down for many years to come.  In fact, this isn’t just a position by some libertarians, but also by many others in the investment world.

While they have been somewhat correct over the last few years and may be right for a few more, there is a limit as to how much they can be right.  If you are arguing that the U.S. dollar will continue to go down, then it should favor hard assets, one of which is real estate.

The dollar has done poorly over the last decade.  This is in relation to other currencies and this is with other currencies being devalued as well.  The price of gold has gone up in terms of all of the major currencies, but it has gone up even more in terms of U.S. dollars.  It should be noted though that there have been exceptions to this trend.  In the fall of 2008, the dollar strengthened quite a bit due to the major downturn in the economy and the flight to safety (which for some reason, people still view the dollar as safe).

It is certainly possible for the U.S. dollar and real estate to both go down some more in the short-term.  The reason for this odd circumstance is because of the previous huge bubble in housing.  The prices in real estate went up so far and so fast that they are still trying to correct, even with the government’s interventions.  Real estate is not liquid like stocks.  Therefore, it can take some time to clear the excess inventory.  In addition, the government has been trying (without much success) to prop up real estate due to the major hits that banks would take if there were even more foreclosures and short-sales.

Long-term, let’s say more than 5 years, this trend is unlikely to continue.  The U.S. dollar will not continue to go down while real estate goes down too.  Just to clarify, I am simply talking about real estate prices in nominal terms and not in real terms.

If the U.S. dollar goes down by 50% compared to other currencies in the next 5 years, then it would be 50% cheaper to buy a house for a foreigner if housing prices stayed the same.  If housing prices continue to go down, then it would be even cheaper.  And this isn’t even accounting for the fact that the foreigner’s currency probably experienced some depreciation of its own.  At some point, housing will be a bargain that just cannot be ignored.

I expect that there is a strong likelihood that the dollar will strengthen again in the near future, especially with the problems in Europe and a likely default by Greece.  Once the Fed goes ahead with QE3, then we may start to see the dollar fall again.  At some point, when velocity picks up, there will be a rush away from U.S. dollars.  People will be looking for hard assets.  Since a house is a hard asset and everyone needs a place to live, it would not surprise me to see housing prices go up again in a few years, at least in nominal terms.

The Austrian Business Cycle Theory teaches us that when we have an artificial boom, usually caused by a central bank, a correction must follow.  The artificial boom is a misallocation of resources that will eventually be corrected when the rate of increase of the money supply goes down.  The actual money supply does not actually have to decrease as the bust can come just from a slowdown in the monetary inflation.

To answer the question of this post, there are a couple of scenarios to deal with.  First, if there is a boom that is not caused by an increase in money and credit, then there doesn’t have to be a bust and there probably won’t be.  The boom would probably look nothing like what we are accustomed to in our modern world of inflation.  Most of 19th century America was a boom, but it didn’t mean huge gains in the stock market or real estate market.  In fact, consumer prices actually when down gradually during this time. (I am not counting the problems during and after Lincoln’s war.)

19th century America was far from perfect.  Even aside from slavery and the war, it was still not a completely free market economy.  But it was one of the closest things we have seen in history and it meant an increase in the living standard for the average American.  A boom in a free market economy means that living standards are rising.  Life is getting easier for the average person.

The next question is: Is it possible to have an artificial boom without a bust?  The question certainly seems relevant to our situation today.  In an article earlier this week, Robert Murphy discusses the fact that we will have to experience a bust in our current situation.  I basically agree with everything he says, except I would like to clarify one thing from his article.

In an earlier part of his article, Murphy says, “According to the Mises-Hayek theory, the preceding boom makes the corrective bust inevitable.  The goal, therefore, is not to keep the boom going, but to avoid it in the first place, rendering the bust unnecessary.”

I completely agree with the latter part of that quotation.  The boom phase is actually the bad part where mistakes are being made.  It is a misallocation of resources.  The bust phase is more painful, but it is actually trying to correct the previous mistakes.  If there was no artificial boom in the first place, then a bust wouldn’t be necessary.

But what about the statement that the preceding boom makes the corrective bust inevitable.  I agree with this in a sense, but only with clarification.  As long as the bust does not necessarily mean negative growth, then I agree with this.  The previous mistakes are going to be corrected by the market.  But just because there is an artificial boom, it doesn’t necessarily mean negative growth sometime ahead.  It could simply mean less growth than what would have otherwise happened.

To use an extreme example, let’s say the Fed expanded the money supply by $1 million.  In a $15 trillion economy, this is literally a drop in the ocean.  Conceivably, it could cause some kind of a misallocation of resources on the margin in some insignificant way.  Maybe the price of a particular good was one cent higher because of this monetary expansion.  But it would be absurd to think that this would cause any kind of noticeable bust.  Perhaps resources would realign themselves in the same insignificant way that they were misallocated, but it wouldn’t cause negative growth for sure.

Even if the Fed’s expansion were bigger, it would still be a race between the free market and the artificial tampering of the money supply.  The damage done by the Fed’s monetary inflation might be overcome with technology, investment, and growth.  In today’s situation, that scenario seems unlikely due to the unprecedented monetary inflation by the Fed, along with the huge government debt.  Technically it would still be possible to avoid negative growth if there is some huge technological discovery that can overcome the previous damage done, but it would have to be something really big.

A good analogy for this is price inflation.  Just because the Fed prints money (or creates it on a computer) doesn’t mean that there has to be a rise in prices for everything.  The electronics industry is a good example of this.  Television, cell phones, and computers get cheaper despite monetary inflation.  Technology in these areas is actually more powerful than the Fed’s damaging inflation.  However, prices would have gone down even more if it hadn’t been for the Fed’s monetary inflation.

In conclusion, the Fed’s tampering with the money supply means that resources are being misallocated.  With a slowdown in the growth of money, the free market will try to correct this misallocation and try to realign resources to their best uses.  The market it always trying to do this regardless of the central bank’s policies.

An artificial boom will make things worse than they otherwise would have been.  You can call the correction a bust, but it doesn’t necessarily mean negative growth.  Technology can overcome this, but it doesn’t seem likely in our current scenario where the government and the Fed have intervened in an unprecedented manner.

Today, I heard Rand Paul on Sean Hannity’s radio show.  They were talking about the national debt and the vote to raise the debt ceiling.  Rand Paul said that he wants some kind of a plan to pass a balanced budget amendment if they are going to raise the debt limit.

First, Rand Paul is not Ron Paul and you can tell that just by how much Sean Hannity is sucking up to him.  Ron Paul is a principled libertarian and does not usually hold back in what he has to say.  His son Rand on the other hand is less radical and less principled, at least in his talk.  He is not anti-war like his dad.  Don’t get me wrong here.  Rand Paul is by far the best senator in the U.S. Senate.  He is more fiscally conservative than any of the other 99 clowns and he has been great on certain things like the Patriot Act.  But he is still not his dad.

So Rand Paul wants a balanced budget amendment.  But do you know what is required to pass a constitutional amendment?  You have to get two-thirds of the House and Senate to approve it and then you need three-fourths of the states.  You would have an easier time getting a libertarian revolution than getting this done.

The next thing is, do we really want a balanced budget amendment.  If that were put in place right now, it would probably mean that our taxes would go up.  Now I certainly want a balanced budget, but I’m afraid that the view of Congress and many of the American people won’t be quite the same.  As a radical libertarian, I want a balanced budget with a government that is, at minimum, a fraction of the size of what it is now.  I don’t want a balanced budget with a $4 trillion annual budget or even a $2 trillion annual budget (although the latter would be an improvement).

Now for my last and most important point in all of this.  If you really want a balanced budget amendment, why would you even consider raising the debt ceiling?  By not raising the debt limit, it is doing the same thing as what a balanced budget amendment would do, at least temporarily.  The only thing an amendment does is make it more permanent.  But if you really want a balanced budget, then simply refuse to vote in favor of raising the debt limit.  It really is as simple as that.  The only reason I can see for advocating a balanced budget amendment but voting to raise the debt limit is because the person wants to kick the can down the road.

If the government did not raise the debt ceiling, it doesn’t necessarily have to default (although I think it should).  It could reduce spending dramatically.  It could eliminate all federal funding for education, agriculture, energy, housing, etc.  All of these things are unconstitutional.  It could end all of the wars overseas.  It could end all foreign aid.  It could start reducing Social Security and Medicare, even on a small scale.  It could sell government lands and government assets.

The problem is that the American people do not want this yet.  They keep putting the same clowns into office and keep demanding a free lunch.  Luckily the general public opinion is not like Greece, but it is not exactly like the American colonists of 1770 either.  I think attitudes are changing for the better, but we still have a long way to go.

As for the debt limit, it will get raised.  There will be some phony spending cuts so that the Republicans can appear to be concerned about the debt.  But this whole balanced budget amendment idea is a joke.  For anyone who cares about a balanced budget, they can simply vote no on raising the debt limit.  If the debt limit isn’t raised, that will automatically balance the budget, unless Obama declares himself a dictator and does it anyway (which is certainly a possibility).

Doug Casey has written an article, linked via LewRockwell.com, on the prospects of our future.  He outlines three possible scenarios and says that we could see any one of them or a combination of pieces from each of them.  I would like to comment on this and add to it.  If you haven’t read it, it is a long piece, but Doug Casey is always worth the read.

First, he runs through the last 100 years in 20 year increments.  It really is amazing what this planet has been through in the last 100 years.  It is really the best and worst of human history.  It is the worst because of the world wars and all of the people that died at the hands of government (mostly their own).  We saw 2 major communist empires (China and the Soviet Union).  We also saw the end of the Soviet Union.  We have also seen communist China change towards more economic freedom, at least by action and not by name.  The 20th century also saw the rise and fall of the Nazis.  One other unfortunate event was the dropping of two atomic bombs that killed tens of thousands of innocent people.

The last 100 years has also been great in other ways.  We would not recognize the world of 100 years ago when there was no air conditioning, no television, no cars as we know them today, no microwave ovens, etc.  We could make a list pages long.  In just the last 20 years we have seen the amazing technology of computers and cell phones and the internet revolution.  The last 100 years really has been a combination of great and horrible things.

Doug Casey lays out three scenarios for what things will look like in 20 years.  He has a best case scenario, a middle of the road scenario, and a worst case scenario.  His worst case scenario involves war, which is hard to argue with.

While hyperinflation is certainly a possibility, I don’t think people understand the ramifications of this.  If there is little warning for the market to prepare with an alternative form of money, we could literally see massive devastation that could wipe out much of the population.  Hyperinflation in the U.S. would mean that food is no longer shipped to the grocery stores.  It means most people staying home from work.  It means a total breakdown of the division of labor, unless there is another form of money that is legal to use and has already been established in the marketplace.  This is why I don’t think the Federal Reserve will purposely put us into hyperinflation.  They would be granting their own death wish.

In Casey’s best case scenario, it actually isn’t too rosy.  I think another possibility, that isn’t too far fetched, is new technology getting us out of the mess we’re in.  Let’s say that someone invents a car that does not run on oil, but is just as cheap or cheaper to buy and to operate than what we have now.  This would be huge and would help our standard of living tremendously.

In Casey’s best case scenario, he says, “most governments decide to endure the pain of allowing interest rates to rise and limiting increases in the money supply.”  I’m not sure that he quite stated that part correctly.  It would actually be the general population that would decide this.  Most or all governments will seize power if they think they can get away with it.  The only check on government power, when it comes down to it, is public opinion.  They will not just relinquish power.

Politicians can make a difference, but they aren’t going to voluntarily give up their power.  For example, Gorbachev would not have voluntarily given up power if public opinion had stayed in his favor.  He saw the writing on the wall and gave up.  The good thing is that he was decent enough not to fight public opinion with violence and start a massive war.  But ultimately, public opinion is what matters.  He could not prevent the collapse of the Soviet Union.

I would lay out a best case scenario that Ron Paul gains tremendous popularity in this election cycle.  He doesn’t need to win, but we need for a sizable minority of people to become strong libertarians.  If this were to happen, it would actually be possible to start rolling back government and moving towards liberty.  We would still have to go through a correction from the massive increases in the money supply and the massive debt built up.  But if government were significantly reduced from our lives, the correction from the previous misallocation of resources would not be too bad.

If you need some optimism, just think of Japan and Germany after World War II.  They were both a mess.  As Casey says in his history part for 1951, “Who imagined that Germany and Japan, although literally leveled, would be perhaps the best investments of the century?”  These two countries turned to free markets and they became two of the richest countries on earth in a fairly short amount of time.  If they can recover from that, the U.S. can certainly recover from high debt and bureaucracy.