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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Michael Pento
February 17, 2011
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In a heated debate on the February 1st episode of CNBC's "The Kudlow Report", financial commentator Donald Luskin offered his "textbook" definition of inflation as "an overall rise in the general price level." I countered with the "dictionary" definition. My 1988 edition of Webster's Dictionary defines inflation as follows: "An increase in the volume of money and credit relative to available goods, resulting in a substantial and continuing rise in the general price level." [Emphasis added.] These differences are not academic and go a long way toward explaining why economists argue so vociferously.

In an inflationary environment, general prices tend to rise, although particular market segments tend to do so at uneven rates. This is hardly controversial. The more disputed question is why prices rise in the first place. As Luskin is well aware, the US Dollar is backed by nothing but confidence and perception. Its value depends upon our collective belief in its current and future purchasing power, and the hope that its supply will be restricted. When its supply is increased, users of the currency lose faith in its buying power and prices rise.

As a corollary, if dollar-holders believe that the US will have no choice but to monetize trillions of dollars of Treasury debt in the near future, the currency will falter. In this manner, currencies that are backed by nothing but confidence tend to behave like stock prices. The share value of a corporation represents the strength of the company. Likewise, the value of a currency represents the strength of a sovereign state.

Looked at through this prism, the fate of the US dollar in the future may not be all that different from the fate of Enron shares in 2001. In the 1990s, Enron was one of the most respected corporations in America, and the share price soared. But once the accounting scandal broke, and Enron's profits were proven to be illusory, the purchasing power of its shares plummeted. Eventually, the shares became worthless. 

The shares did not collapse simply because Enron issued more shares and diluted value. The big change came when investors lost faith in Enron. Likewise, the US dollar may lose value because of garden-variety dilution, but the real leg down will occur if holders of US government debt lose faith that they will be paid in full. Even if there is the mere perception such an outcome is likely, it will cause the dollar to tank and aggregate prices to rise.

The Fed and Treasury have set out on a deliberate strategy of creating inflation in order to monetize most of the $14.1 trillion national debt- a debt that is growing by well over a trillion dollars per year!