BEST OF JIM COOK

February 20, 2007

IMMIGRATION AND INFLATION

Once upon a time immigrants to America had a hard row to hoe. The land of opportunity offered only that. If you worked hard, you could make a decent life for yourself. America became a land of "rugged individualists." In those days, Americans asked for nothing more than freedom and the chance to strive for a better life.

There was no subsidized housing, no food stamps or other benefits to make life easier. When you got sick, the government didn’t pay your doctor bill. That’s all changed. Most of today’s immigrants get subsidies of one sort or another. Naturally, if you get food stamps and free housing, that’s an incentive to come here. However, in some cases, subsidized housing projects have become baby factories, enabling mothers to procure additional government payments.

My mother was born in Buffalo, New York. She traced her lineage back to colonial times. When she was a young girl, her widowed father was transferred by his company to Canada. There she met my Dad. After I was born they decided to try and emigrate to the U.S. They went through a lot of paperwork and finally got us admitted. The first thing I remember about the U.S. was that I cried the day that Babe Ruth died.

My father was coming to the U.S. to take a job in the insurance business. No subsidies of any kind awaited. He wouldn’t have taken them if they were available. In fact, there was a stigma attached to any kind of government handout. At that time, welfare was doled out to a small segment of the populace and they were looked down on. A black mark was attached to welfare or unemployment compensation, and nobody with any gumption would consider these options.

In 50 years, all of that has changed. An army of the entitled (the government’s term) works the system for maximum benefit. The politicians bend over to give them more freebies. The subsidized even have their own lobbyist to make sure the handouts keep coming. The line at the government trough grows longer by the day, as new programs give away more and more.

In order to pay for this spend-fest, the government has to print money to cover its deficits. This inflation of the purchasing media is a necessary requisite to fund the numerous socialist schemes that have overtaken the land of rugged individualists. This watering down of the currency pays for the subsidies that have rendered so many people dependent, dishonest and helpless. It’s a social mess that only the government could engineer.

Whenever I write about the social schemes that are breaking the budget, I get angry e-mails and letters from people who say I’m forgetting the cost of war. Yes, inflationary purchasing media also pays for the war. That’s why the Libertarians call it the welfare-warfare state. Whatever the reason for these vast expenditures, the currency is being debased. You can’t have socialism and foreign adventures with a sound currency. You have to have printing press money and credit inflation to pay for it.

Now the credit binge initiated by the U.S. has spread globally. Everybody’s doing it. As Richard Russell points out, "The world fiat money situation has existed for only 35 years, and already under the care of the world’s central banks, it’s out of control – or as a teenager might express it, its ‘money gone wild.’"

A similar comment comes from newsletter editor Lance Lewis, "The fiscal situation in the US is an absolute nightmare and a classic case for forced inflation, if ever there was one. I’m beginning to believe that the Fed may even be taking the approach that it can’t even risk the possibility of a recession taking place. It would seem to explain the large liquidity injections that took place in Q4 of 2006 as the housing market began to stumble badly, even though the financial markets never even flinched during that period…. Historically, governments do the same thing over and over again when they are forced to pay for expensive wars. In the end, they always turn to the printing press in the name of king and country."

This shocking report comes from Dr. Michael Berry. "Recently, it was reported that the U.S. government shipped 363 tons of $100 bank notes to Iraq for ‘distribution.’ Ostensibly, this money was shipped to help set up the various Iraqi government ministries. The total amount of the money was twelve billion in cash. Twelve billion dollars represents a donation of $40 for every man, woman and child in the U.S. The surprise is that the money has apparently disappeared. This is the ultimate level of debasement of a currency. Print it on paper and then send it to a foreign land where most of it disappears."

Economist Doug Noland points out a fundamental flaw in the current outlook from Wall Street. "It ignores the enormous ongoing degree of credit, liquidity, and speculative excess necessary to sustain this most expansive boom. A tremendous amount of credit growth was required last year to maintain elevated home prices; to inflate stock prices; and to drive robust income growth – not to mention the $trillion or so that gushed out and further distorted global economies, markets and financial systems. Especially after last year’s income, equities, and global inflations, even greater excess will be necessary to sustain the credit and economic bubbles this year and next."

Most people don’t see it this way. They’re oblivious to the ongoing flood of liquidity. If you believe these arguments are likely true, you are in the minority. Most people think a little inflation is good. However, inflation does not remain static. It either worsens, as it has been, or it ends and there’s an economic bust. The sentiments of the Federal Reserve clearly favor more inflating. Ultimately, the currency will suffer too much damage and its subsequent devaluation will worsen to the point of panic. Someday the piper must be paid.

Years ago the economic thinker and author, Henry Hazlitt, warned, "Once the idea is accepted that money is something those supply is determined simply by the printing press, it becomes impossible for the politicians in power to resist the constant demand for further inflation….If the welfarist-socialist-inflationist-trend of recent years continues in this country, the outlook is dark."