The media are always going after Donald Trump these days, but one of the latest topics is an interesting one because it actually goes way beyond what is being discussed.

When Trump was being interviewed by Chris Matthews, he was pressed on what he would do to make abortion illegal.  Trump initially tried to dodge the question, but Matthews was relentless.

I don’t think abortion is on Trump’s agenda at all.  He is probably just playing the pro-life position so that he can somewhat fit in with the Republicans, even though he has deviated on other issues.  We can doubt whether anything would change with regards to abortion even if a hardcore social conservative (Cruz?) were to win the presidency.  With Trump, there is almost no chance that anything would change.

Still, Matthews kept pressing Trump to respond on what penalties there would be.  Trump finally said that a woman who gets an abortion would be punished in some way.  That is what Matthews wanted him to say.  It was his “gotcha” moment.

Trump was unprepared.  He should have been prepared for such a question.  He later backtracked after the interview and said that it would just be the doctors who would be penalized.

I don’t mind the “hardball” questions from Matthews except that he is a total hypocrite.  He wouldn’t ask these questions of Hillary Clinton, or anything remotely as hard.  Actually, Hillary Clinton probably doesn’t do any interviews where she doesn’t already know the questions, or at least where she doesn’t feel comfortable with the person interviewing.  You won’t ever catch Hillary Clinton in an interview on Fox News.

Trump is essentially forced to do many interviews.  The media is constantly lambasting him.  He has no other choice but to take his message directly to the people.  If he didn’t do interviews often, he would be a sitting duck.

With that said, Matthews’ question and Trump’s response really go way beyond abortion.  It actually reveals the total nature of the state.

Why doesn’t Chris Matthews ask Trump or any other candidate what they would do to punish someone who doesn’t pay their required taxes?  Why not ask what the penalty should be for not paying a parking ticket or a late fee for a library book?

For someone who doesn’t pay their taxes, they will eventually receive something telling them to pay, probably along with a penalty and interest.  If the person refuses to pay, then they will eventually get a notice to appear in court.  If the person doesn’t show up for court, then armed men with guns will go to the person’s house and break down the door.  They will take him to jail.  If he refuses to go to jail, he will likely be shot.

This could even happen with an unpaid parking ticket or a late fee for a library book.  That is the nature of the state.  It ultimately rests on the use of violence.

If Trump or anyone else is going to make abortion illegal, then force would have to be used at some point if the illegality of it meant anything.  This isn’t an argument for or against the legalization of abortion.  It is just the simple truth.  I understand that some people view abortion as the taking of a human life, therefore they believe it would be justified to use some kind of force as a form of defensive force.

At least with abortion, an argument can be made for defensive force, if you consider it defending the unborn fetus.  But with most other government laws, it is not defensive force.  Really, anything that requires forced taxation is the initiation of force by the state.

I wish Chris Matthews, or any other so-called journalist, would ask these candidates what they would do to punish someone who doesn’t pay their income tax, or who refuses to abide by Obamacare, or who quits their job with the military, or who buys certain drugs without a prescription.  I would like to see follow-up questions leading up to the ultimate conclusion, which is the use of guns.  At some point, the state will use guns to enforce the laws, or else the laws are meaningless.

Most people probably didn’t think through Trump’s comments on abortion this much.  But if you look deep enough, it is a great lesson on libertarianism.

There is an irrational fear of deflation that exists in our world.  Perhaps it is because of the Great Depression, where there was a deflationary effect due to bank failures.  It was a reversal of the fractional reserve lending process.

There is an association of deflation with a bad economy, but that is only because the so-called deflations we get now are associated with the central bank and the artificial business cycle.  If the Fed didn’t inflate in the first place, there would be no correction to deal with.

In much of the 19th century – ignoring the era of war in the 1860s – there was mild price deflation.  This was due to a relatively stable money supply with an increase in productivity.  It was a major benefit to people, as their earnings and savings had greater purchasing power.  It meant an increasing standard of living.

Although we do not currently have deflation in prices, or monetarily speaking, the Fed and other central bankers around the world are desperately trying to get higher price inflation.  The Fed has this ridiculous target of 2%, as if we are better off losing 2% of our purchasing power every year.

The main reason price inflation has stayed relatively low in Europe and Japan, despite easy money and low (even negative) interest rates, is because of fear.  People are holding on to some of their money due to a bad economy and perhaps expectations of continued trouble ahead.  People wisely don’t want to go into major debt or buy things they don’t need.

The U.S. is a little different.  The Fed has actually had a tight monetary policy over the last year and a half, despite the low interest rates.  So low price inflation right now actually makes sense in regards to the business cycle.  But price inflation was relatively low even during the several rounds of so-called quantitative easing.  Again, fear is a big reason.  It keeps velocity low.  Money changes hands less frequently.

There are some people who think that deflation is inevitable at this point.  We hear phrases such as “pushing on a string”.  And this isn’t a bad description of what is happening now.  But it is important to realize that the Fed (or any central bank) can create positive price inflation at any time, as long as it has a monopoly over the money supply.

Ben Bernanke said in 2002, prior to becoming Fed chair, the following:

” But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation .”

Bernanke has been wrong on many things, but on this point he is precisely correct.  The Fed could announce tomorrow that it will add $10,000 to every checking account per individual in the United States within the next month.  And if this didn’t do the trick, the Fed could say that it would continue this practice every month until it decides to stop.

This would ultimately bid up prices.  Upon such an announcement, certain commodities would likely jump dramatically almost instantaneously.  Gold would probably double in price in a short time frame, if not more.  Prices all over would be extremely volatile as the marketplace tries to figure things out.  But the general trend would definitely be up for prices.  Just the anticipation of massive price inflation would be enough to bid up prices.

The point here isn’t that the Fed would do something so dramatic.  It would probably lose a lot of credibility in an instant if it did such a thing.  Ironically, it might be less of a ripoff with this monetary inflation as compared to its past schemes of bailing out companies and funding government deficits.  Still, such a scheme of handing out money to everyone would redistribute wealth in a different way, and it would severely distort economic activity.

The main point here is that the Fed can produce positive price inflation at any time if it is really determined.  The Fed is not desperate right now.  It is content as long as the economy seems to be humming along.

The key is to figure out what the Fed will do if we hit a major economic downturn.  We can’t read minds, but we can look at incentives and past performances.  All indicators point to another round of money creation if things get bad enough.

And that is the number one case for owning some gold.

As I write this, the Wisconsin votes are still being counted.  But the big winners are Bernie Sanders and Ted Cruz, both of whom are projected to win.

Actually, Ted Cruz isn’t really the big winner, despite what the headlines may read.  Paul Ryan and the Republican establishment are the big winners.

Mathematically speaking, it is almost impossible for Ted Cruz to get a majority of the delegates secured going into the convention.  He is a tool of the establishment right now.  It is a long shot that he could overtake Trump in the delegate count too.

The reason Cruz is still in the race is because he is the only hope for the Republican establishment to prevent Trump from reaching a majority of delegates going into the convention.  And if Trump is just one delegate short, then we can be reasonably sure that the establishment will take the nomination away from him.

The favorite right now in a brokered convention is Paul Ryan, the current Speaker of the House.  Ryan was also part of the failed ticket with Mitt Romney in the last election.

Even though presidential elections are overrated in the sense that not much usually changes from one to the next, this race is particularly interesting.

The Republican primaries in 2012 were interesting only because of the presence of Ron Paul.  He was a major thorn in the side of the establishment, but they correctly believed at the time that he was a long shot to actually win the nomination.  He was just a threat in exposing some of their lies and bringing forth issues that otherwise wouldn’t have been discussed.

Trump on the other hand is a major threat to the establishment.  He has questioned some of the main establishment beliefs and he can’t easily be bought.  Trump has questioned U.S. foreign policy and its vast empire.  To be sure, Trump is inconsistent.  But the fact that he is the leader in the race up to this point while maintaining some of these positions is a major reversal of public opinion.

That is the main reason to be interested in presidential politics.  It can give us an indication of how public opinion is changing.  And the race itself can change public opinion as new ideas are accepted.

And if the entertainment on the Republican side weren’t enough, the Democratic race is still providing some entertainment.

I thought Hillary Clinton had it all wrapped up against Bernie Sanders.  But Sanders is like a bug in her ear that won’t go away.

The establishment doesn’t want Sanders either, although he would be more acceptable than Trump.  But I continue to say that Sanders is Clinton’s third biggest threat.  The top two threats against Clinton are the FBI and the economy.

I think Sanders is staying in the race for a few reasons.  He doesn’t have a lot to lose at this point.  Plus, if there is an indictment against Clinton for her email scandal, then Sanders would pretty much walk into the nomination at this point.  Then again, you still can’t count out the Clintons, even with an indictment by the FBI.

The delegate race between Clinton and Sanders would be close except most of the so-called super delegates are locked into Clinton at this point.

If the race does end up between Trump and Clinton, you have to wonder how many Sanders supporters will stay at home on Election Day, or maybe even vote for Trump.

Most people I know, even those who would vote for Trump, do not support everything he says or everything he stands for.  There probably are some people who believe everything he says, but I don’t think that is the majority of his supporters.  It probably isn’t any one issue in many cases either.  Many of Trump’s supporters are with him because it is a vote against the establishment and the status quo.  They know they are getting ripped off, so it is the voters extending their middle fingers in the direction of the establishment.

If Trump has the nomination taken away from him, it will just infuriate his supporters that much more.  That is actually good news for libertarians.  It will mean less consent for the federal government.

The state of California is set to raise the state minimum wage.  If the law goes as planned, it will be raised to $15 per hour by 2022.

A lot has been written about the minimum wage, so I don’t want to rehash all of the arguments against the minimum wage in detail here.

Minimum wage laws obviously increase unemployment, or at the very least distort the job market, if the minimum wage rate is above the market rate for certain jobs that would exist without minimum wage laws.

If the minimum wage were currently set at $1 per hour, it would have virtually no impact because almost nobody would accept a job for less than $1 per hour.

Actually, there are unpaid internships, but these only serve as an example of one reason why minimum wage laws are so destructive.  Some people actually work jobs in order to gain experience and get their foot in the door.

There is also the reductio ad absurdum argument against the minimum wage.  If a minimum wage of $15 per hour is so great, then why not set it at $100 per hour?

In addition, what is so magical about $15 per hour.  Why not $14.99 per hour or $15.01 per hour?  And if it is so important, why wait until 2022?  Why not implement it immediately?  Do the proponents actually admit there is a potential cost to raising the minimum wage?

Also, consider the personalized situations of families.  Maybe there is a family where the father/ husband works full-time while the mother stays home with the kids.  In order to make a little extra money, the mother/ wife works 15 hours per week (nights or weekends) to make a little extra.  She may just want something quiet and mindless to get away from the kids and she is willing to make just $7 per hour.

Consider a college student, or a grad student.  Maybe he could land a job for $20 per hour.  But he decides to take a night shift job sitting at a desk for $7 per hour.  He only has to help a few people during his entire shift.  He uses all of the quiet time to study.  This is the job that works well for him.  He wouldn’t be able to work a job that left little time to study.  So the $7 per hour wage is a good deal for him.

But that doesn’t matter to the proponents of a minimum wage.  They either want this guy to be out of a job, or they don’t understand the impacts of their own laws.  Maybe this guy will get lucky and get a bump in pay with the new minimum wage.  Or maybe the company will decide to abandon the night shift and close during this time and hire fewer people.

The bottom line is that minimum wage laws make certain jobs illegal for certain people.  If an employee and an employer agree to a  certain job at a certain wage, then the employer will end up being fined and taken to court.  If he refuses, then armed men will come and take him to prison.  If he refuses, then he will be shot.

That is the nature of law.  It is backed up by force.  If it isn’t, then it really isn’t a law.  Of course, most of the laws are arbitrary and use aggressive force (as opposed to defensive force).  These are not laws of nature or common law.

So California law will now criminalize more jobs than it already has.  It may or may not lead to higher unemployment in the future, but it probably will.  The only thing that may help them get away with it is the Federal Reserve creating money out of thin air.  If inflation is high enough over the next several years, it might make the effects of the new minimum wage obsolete.

Actually, it was the inflation of World War 2 that helped bring down the high unemployment rate (along with shipping off millions of young men).  Sometimes one bad government policy can help lessen the effects of another bad government policy.

Still, California is a booming place right now, but I don’t really mean that in a good sense.  A lot of the boom is artificial and unsustainable.  San Francisco is perhaps the biggest real estate bubble in the United States right now.

If there is a major recession, California could be hit really hard.  Then, all of a sudden, a high minimum wage rate could have a devastating impact.  I don’t wish for hard times for people, but it would be nice to see all of the proponents of the minimum wage to eat some crow on this one and have to repeal it or scale it back.

I understand that a lot of people like the culture and lifestyle of California.  There are also some beautiful places and things to see there.  Also, many people have their roots there, along with family.

In those aspects, I understand the attraction of living there.  But unless you are working for a Silicon Valley tech company or as a Hollywood star, I don’t see the appeal of having a career in California.

You will make less money living in most other places in the U.S., but your money will go so much further.  In some cases, you can get a place to live for nearly one-tenth of the cost as a similar sized place in San Francisco.  And even the other big cities in California are really expensive.

The leftists in California are taking one more step in criminalizing employment and making it harder to do business in the state.  It will also make it harder for the residents, whether they know it or not.

My suggestion for someone living there is to find somewhere more affordable to live, and somewhere that is more business friendly.  If you like warm weather, you can consider Texas or Florida.

This is a tough subject for me to address.  It is tough because I may sound contradictory if I am not precise with my language.

The middle class in the United States (not to speak of other first world countries) is struggling.  I understand that we have luxuries today that could have only been dreamed of a generation ago.  Still, a lot of middle class families are struggling with stress and money.  They work long hours and barely have enough to pay the bills each month, let alone actually save money for retirement or a rainy day.

When this issue comes up, I often hear conservatives talk about frugality and self-responsibility.  Even many libertarians go straight to this, and I often cringe.

I am all about frugality to a point, and being a libertarian, I am obviously in favor of self-responsibility.  But by addressing these issues first, I think it is letting the government off the hook to a certain degree.

The federal government spends nearly $4 trillion per year, with state and local governments spending at least another $2.5 trillion.  About 40% of our income goes to the government, and this isn’t even taking into account how much poorer we are because of regulations.

When you add up federal, state, and local government spending, it is about the equivalent of the median family income in the United States.  Figure that one out.

But I will read an article or listen to a talk show and hear about someone who makes a middle class income who is struggling with his finances.  Then I hear the horrible response that he could live in a small apartment and cut coupons and budget just a couple of hundred dollars or less per month for food.  I also hear that he doesn’t need a cell phone or cable television.

This is all like nails on a chalkboard to me, and let me tell you why.

The problem is that I am hearing this when the topic is mainly about politics or economics.  It is not coming from articles or talk shows that primarily deal with financial advice.  If I hear this from Dave Ramsey or Suze Orman, that’s fine.  It is probably good advice.  It is relevant advice.

The problem here is that the complaint is more general about how tough times are today.  The complaints are valid.  The middle class really is getting hosed, for lack of a better word.

Everybody knows they can live in a cheaper place and eat rice and beans for dinner every night.  They know they can get rid of all of their electronic gadgets and save some money.  But the point is that these people don’t want to do it, and I don’t blame them.

We are not talking about people with new $40,000 cars who take $10,000 vacations every year.  If they are complaining about their lack of money, then maybe I can understand this response.  But I am talking about people who are living a fairly modest lifestyle.  Maybe they have a new car and have their kids in some activities.  But are they supposed to drive a beat-up junker their whole lives and keep their kids fenced in at home?

There is a time and place for lecturing people on how to budget more wisely.  When you are talking politics and economics, that is not the time.

Conservatives and libertarians are missing a huge opportunity.  Maybe the conservatives don’t care because many of them really do love big government.

But for libertarians, we should be advocates for these people.  It is the state that is making their lives so difficult.  We should be able to have cell phones and cable television on a middle class income without feeling a major struggle.  We should expect an increasing standard of living where we have new luxuries that are affordable.

The problem is that our living standards are not increasing as they should because the state is holding us back.  The state in all its forms is hurting savings and productivity.  Libertarians should be defending the middle class, telling them that they would be able to have all of their gadgets and more without feeling the struggle if only the state would get off of our backs.

Sure, there are a lot of people who make unwise financial decisions, if we can even judge.  But there are also a lot of people who make good decisions.  And the middle class, even for those who have been relatively frugal, is struggling because the government is taxing and regulating us like crazy.

So let’s answer the initial question.  Is it your fault you don’t have enough money?

There is no clear-cut answer to that.  For some people, it really is largely their own fault.  For some people, it is primarily the state that has made them poor.  For most people, it is probably a mix.

I am not saying all of this as an excuse.  You shouldn’t just throw your hands up in the air and say, “the government is too big and there is nothing I can do about being poor.”  You still have to take control over your own life to the degree that you can.

The reason that Donald Trump and Bernie Sanders have done so well up until now in the presidential race is because they are acknowledging there is a major problem out there.  Most of their solutions may be bad, but at least they are recognizing the struggles out there.

Libertarians should be advocates for the struggling middle class, and the lower class too.  This isn’t to make excuses for anyone.  This isn’t to say that people shouldn’t take responsibility for their own lives.

If someone is looking for financial advice, you can give it to them, which might include budgeting techniques.  But if someone is looking for some sympathy because the government has made it tough to get by, you should provide some sympathy.  It is the perfect opportunity to let people know exactly why they are struggling so much.

Libertarians will argue over abortion and immigration, but there are general things we can agree on with these issues.  At least some of the solutions can be found in decentralization and property rights.

With immigration, if you end government welfare – which all libertarians should agree – then it automatically solves a major portion of the immigration issue.

I don’t know if there is a lot of disagreement, but one of the toughest issues for libertarians is the banking system.  We obviously share agreement that there should be a free market system, but how do we get there with our current system?

I know that most people opposed the bailouts in 2008.  And it is ridiculous that these companies received bailouts only to see the executives later receiving big bonuses.

Obviously the car bailouts were a case of protectionism and corporatism.  It’s not that the other bailouts weren’t, but just that they go deeper.

The public opposed the bailouts for the most part, but what if they had been given a choice between the bailouts and having the chance of losing deposits in their bank account?

The average American probably only has a few thousand dollars in a checking account, but it is still something.  And there is a general respect for property rights when it comes to “cash” in the bank.

We can’t be sure if this would have happened, but if there had been no bailouts, there is a good chance that the big banks would have gone under.  The FDIC was supposed to insure deposits up to $100,000 (now $250,000), but the FDIC barely has any money.  If the FDIC had covered all of the failed banks, then the FDIC would have needed a major bailout, which could only be feasibly done by the Fed.  Either way, it is a bailout.

In other words, unless you are prepared to say that the whole banking system should have been allowed to collapse, then the bailouts may have been necessary, at least to some extent.

The other option is that the government could have outright nationalized the major banks (or all banks), but what kind of libertarian would advocate that?  Actually, there are a few libertarians out there who did understand the depth of the situation and advocated nationalization as the least bad of the all of the options.

I still do not know what the answer was, other than the fact that the people should have never allowed the government to get into the mess in the first place.

I know some libertarians would say to let the whole thing collapse.  I myself say that with many issues.  But the banking system is everything.  Without a functioning banking system, all chaos really would break loose.  It might mean a severe breakdown of the division of labor.  Will the truckers deliver food to the stores if they can’t get paid?

In the U.S., there is basically no alternative money at this time.  In some foreign countries, the U.S. dollar functions as a secondary currency.  If the U.S. dollar broke down, something like gold would quickly replace it.  But without any other money currently in use in any significant way, the transition would be tough and not instantaneous.

Unlike some other libertarians, I am not an advocate of compelling banks to not engage in fractional reserve lending.  In a free market system, I believe it should be allowed as long as the parties are made aware of the situation.

But if 100% reserve banking were needed to get back to a free market banking system, it would be hard to oppose in the short run as a transition measure.

Over the last 8 years, banks have piled up a couple of trillion dollars in excess reserves.  It would be far easier to get to a 100% reserve system than it was a decade ago.  In this sense, the banking system is actually a little better off than it was in 2007/ 2008.

In a 100% reserve system, the banks would not be allowed to lend out money unless it were based on deposit money that is not instantly redeemable.  In other words, the money sitting in your checking account could not be loaned out.  It would mean that you would probably have to pay higher bank fees, but it would also likely mean a more stable banking system.

The banking system is one of the biggest and toughest issues we have to deal with.  It is so heavily controlled by the government, it is hard not to use some government solutions initially to get us out of this.

I hate writing and discussing this issue in a sense because I feel as though I am giving up my status as a hardcore libertarian by advocating interim measures and quasi-government solutions to get out of the current mess.  Still, it is a subject that is mostly avoided by libertarians (and everyone else) and I haven’t really heard a better solution that doesn’t involve total chaos.

I keep seeing reports and articles saying that China is selling U.S. Treasuries.  Is this true?  There are obviously a lot of implications if it is true.

But according to U.S. government data, the Chinese central bank has reduced its holdings by only a minuscule amount.  Billions of dollars is not minuscule in our world, but it is when you consider that China still holds over 1.2 trillion dollars in U.S. government debt alone.

The latest statistics on foreign holders of U.S. debt were released on March 15, 2016.  China is still the number one holder, with Japan at number two.  The next highest is not even close to those two.

In 2015, China topped out its holdings in June with 1.271 trillion dollars of U.S. Treasury securities.  As of January 2016, this number stands at about 1.238 trillion dollars.  In other words, the People’s Bank of China is only down about 33 billion dollars in holdings from its peak last year.  Compared to January 2015, its holdings are down just over a billion dollars, which is negligible when you are talking about these amounts.

If anything, it is the Japanese central bank that has been selling off U.S. debt, or at least not rolling over maturing debt.  The Japanese went from 1.239 trillion dollars in holdings in January 2015 to 1.124 trillion dollars in January 2016.  There, you are talking about a reduction of more than $100 billion.

There has been talk for many years now – at least with some of the stuff I read and listen to – that China holds a card over the U.S. in being able to sell of U.S. Treasuries.  We are told it could collapse the bond market.  We are told that China is able to control the U.S. because of this leverage.

It might all be true if it weren’t for the fact that the Chinese central planners are a bunch of mercantilists.  They think they need to hold foreign debt and keep their currency down in order to prop up exports.  It does prop up their exports, at least in the shorter run, but it is done at the expense of the Chinese consumer, of which there are about 1.3 billion.

Meanwhile, the American consumer gets subsidized, in a sense, by having cheaper imports.

The bad thing about China owning all of this debt is that it also subsidizes the U.S. government, meaning the reckless spending habits of U.S. politicians.

If the Chinese (and Japanese) did not buy up all of this debt, then it would be up to the Federal Reserve and private investors to buy up most of it.  This would probably mean higher inflation and higher interest rates.  It would eventually mean less deficit spending by Congress.

For this reason, I really do wish the Chinese central bank would reduce its debt holdings.  Instead, it let’s the Fed get away with monetary inflation that does not lead to short-term increases in price inflation and interest rates.  There are other reasons this has happened as well (low velocity, excess reserves), but the Chinese buying of debt is a factor.

Putting yourself in China’s shoes, it is hard to say they are in control. It reminds me of the quote that if you owe the bank $100, that’s your problem.  If you owe the bank $100 million, that’s the bank’s problem.

The U.S. probably isn’t going to default on its debt to China any time soon.  But it will default in the same sense it constantly defaults on promises to the American people.  It will default through depreciation of the currency.  China will eventually get its 1.2 trillion dollars back, but it may not buy them much.

As of right now, China is holding pretty steady and Japan is reducing its holdings, although not drastically.  The Fed ended QE3 back in late 2014.  Yet interest rates have remained low.  There is demand for U.S. Treasuries, despite the lack of buying from the Fed and foreign central banks.

If anything, this indicates a recession is coming.  There is not an inverted yield curve yet, but long-term rates are staying down.  It may not have to invert for there to be a recession.  It has already flattened a bit.

Sometimes I have to remind people (if they ever knew) just how much the government is taking from them.  Most people will look at their income taxes and payroll taxes and think that is what they are forking over to the government.

There is obviously so much more.  Employers also pay payroll taxes for their employees, which means lower wages.  There are excise taxes.  There are corporate taxes that lead to lower wages and/ or higher consumer prices.  There are many other taxes.  There is also the issue of inflation.

The only proper way to measure what Americans are paying is by looking at government spending.  All money spent by government is really obtained through taxation in some form.  Even if it is done through debt and inflation, it is still diverting these resources.

The federal government is now spending close to $4 trillion per year.  There are about 120 million families in the United States.  This means that your family’s share of the government is over $30,000 per year.  This is just for the government in Washington DC.  It does not include all of the state and local spending that you fund as well.

Imagine if the federal government had no debt and actually stayed within the confines of the enumerated powers listed in the Constitution.  Imagine some basic defense spending (no offense) and a few other basic functions such as the courts.  Imagine the federal government only spending a few hundred billion dollars per year.

I understand this implies no spending on Social Security, Medicare, Medicaid, schools, transportation, and a bunch of other things.  But if you had an extra $30,000 per year of cash flow, would you really care about those things?  And if they really are critical, then couldn’t the states pick them up instead?

This just shows the absurdity of the whole system we are living under.  Such a huge percentage of our production is taken away from us, it is almost a miracle that our living standards are as high as they are.

With the presidential race going full swing, there is obviously a lot of discontent out there with the surge of the outsiders.  Maybe they aren’t outsiders, but they are at least perceived that way.

But the reason that the American middle class is struggling so much is because the government takes about half of their money away.  This makes it rather hard to get by.  This isn’t even accounting for the massive regulations and bureaucracy that we face.

The craziest thing is that if you add up government spending at all levels and divide it up by each American family, it is about equivalent to the median family income.  Again, how is it even possible that our society functions as well as it does?

That is a statistic you would expect out of Western Europe or some socialist country.  When government is spending more than the median family income, something has got to give.

By the way, the reason that statistic is even possible is because obviously the median income has already had a lot taken off the top of it.  If government spending were cut to a fraction of its current size, then our higher living standards would show up as a combination of higher wages and lower prices.

We need a major correction.  The market tried to give us one in 2008.  For state and local government, it did help scale it back a little in some areas.  Unfortunately, the federal government has ballooned up more as a result.  It is not sustainable.

When something is unsustainable, it will come to an end at some point, even if most people don’t realize it.  There will be a harsh correction.  Eventually, the federal government will be forced to cut back.

The only question is how long it will take for it to happen.  If there is a severe recession, things will depend on Federal Reserve policy.  If the Fed helps fund the deficits by creating money out of thin air, then the ridiculous spending could go on for a while longer while making everything worse.

We should all be prepared for these scenarios.  The recession will come.  It is a question of whether it is allowed to play itself out or if the government and central bank will just make things even worse.

All government spending – if it is not used to protect liberty or enforce contracts – is a misallocation of resources.  The qualifier in there is debatable amongst libertarians, but I don’t want that to be the focus of this piece.

If the government is spending money on something, other than anything that actually protects our liberty, then it is money spent on things that consumers would otherwise not have chosen.  If the government collected taxes on a voluntary basis, this could be a different story.  But since virtually all taxes are collected on the basis of force or threats of force, the state is spending money on something that we would not have chosen, otherwise the taxation wouldn’t have been necessary.

Government also spends money using inflation and debt, but again, this is essentially the same as forced taxation.  It may be a more devious form of taxation, but we are essentially being forced into this system.

Even though virtually all government spending is a misallocation of resources, we have to consider that some spending is more wasteful than other spending.

This is a point addressed in a recent piece by Ryan McMaken on the Mises Institute site.  He cites an interview of Marc Faber, where Faber points out that much of China’s government spending went into infrastructure.  And although this is wasteful spending, Faber points out that at least it could conceivably be useful one day.

I agree with Faber’s general point that the misallocation of resources is worse in some cases than others.  I’m not sure if China is the best example because of the massive ghost cities that have been built.  All of the roads and expensive buildings don’t do much good if there is nobody living in them.  Also, China’s misallocation may be the biggest bubble in human history.

Building an excess of roads in an area that is at least somewhat populated might be a better example.  If you have a road that only has about 1,000 cars per day go on it (assuming it is not part of a housing community), then it probably wasn’t worth the expense.  But at least it is getting some use, and even possibly relieving a little bit of traffic from other roadways.

Of course, it is impossible to know for sure if a particular road is “worth it” because there is no market mechanism in the form of profits and losses to indicate such.

Still, Faber’s overall point is well taken.  I would much rather see government money spent (wasted) on a road that nobody uses than have it spent dropping bombs on a foreign country.  I would rather see the government spend money to subsidize electric cars than to see it spend money on funding foreign dictators.

All of this spending is a misallocation of resources, but obviously some spending is more harmful than other spending.

I would probably get a lot of agreement from people on the left that subsidizing electric cars is a far better use of resources than fighting wars.

Unfortunately, the same people on the left can’t understand that subsidizing electric cars is in fact a misallocation of resources.  I have nothing against electric cars as long as they operate in a free and voluntary market.  The problem is that they don’t.  The only way that businesses can be profitable (it seems at this point) is by getting subsidies through the government either directly or given to the consumers.

In conclusion, some government spending is worse than other government spending.  But virtually all of it is a misallocation of resources.  This hurts our living standards and makes us poorer than we otherwise would have been.

The Federal Open Market Committee released its latest statement on March 16, 2016.  While the Fed did not hike its key interest rate – the federal funds rate – it did alter expectations for 2016.

It is now expected that the Fed will raise its key rate only 2 times this year, as opposed to the previous projection of 4 times.

The Fed is saying that price inflation is tame.  And by judging from the CPI, the Fed is correct.  It just so happens that the latest CPI numbers also came out on March 16.

The CPI actually showed up as negative 0.2% for February from the previous month.  Year-over-year, the CPI is up 1%.  However, the median CPI is still coming in at 2.4% annually.

There are a few problems here though.  First, we shouldn’t have this desire for 2% inflation.  In a free market system, we would typically expect prices to gradually fall to reflect gains in productivity and technology.  Imagine how inexpensive electronics would be today if the Fed weren’t partially counteracting these great gains.

Another major problem is that the CPI is not reliable in judging consumer prices.  I still watch the CPI because it is useful to see trends.  It also gives us a look at the data that the Fed and other analysts are looking at.

But perhaps the biggest problem is that the low CPI numbers are giving the Fed – and us – a false sense of security.  The CPI does not take asset price inflation into much account, which is where the bubbles often form.

This is especially bad because it falsely leads us to believe that the Fed is not doing much damage.  If we don’t see skyrocketing prices (ignoring health insurance and certain asset prices), then the Fed must not be harming us much.

But rising prices is just one consequence of a loose monetary policy.  Price inflation has remained low due to a lack of bank lending, coupled with a high demand for money.  The high demand for money means a lower velocity.  Right now, I believe this is a reflection of continued fear amongst the American people.

The Fed had an extremely loose monetary policy from 2008 to 2014.  Prices may not have gone sky-high, but the damage is done.  It has misallocated resources.  When those resources eventually try to realign to actual market demand, the correction is going to be painful.

There has also been a major misallocation in terms of savings and investment.  While spending may not be as crazy as the peak of the last bubble, there is little doubt that it is distorted and that savings should probably be even higher than they are.  We need savings and investment in order to set the stage for new prosperity that is actually sustainable.

So the main problem here is that the Fed will have no trouble starting QE4, or whatever they will call another round of money creation.  They will not perceive price inflation as a great threat.

Price inflation can jump quickly in these types of situations.  You should be prepared for this.  I recommend at least 20% of your investment portfolio in gold and gold-related investments for this reason.  You can also add in a little bit of silver.