October 23, 2007

The US government, pure and simple, is lying to you when it comes to Inflation

Why the lies and deception?

Because they have to.

There's no way they could do social security cost of living allowance increases to match true inflation, otherwise the US would go bankrupt even faster than it eventually will.

Here's a look at CPI based on how the government computed it prior to the recent changes. Yup, 10% this year. Feels about right. And you ain't seen nothin' yet. Because Ben Bernanke hates you.

Better start making more, spending less or investing wiser America. Or else your standard of living is about to plummet.

Prices are the Cart, Money Supply is the Horse - By Peter Schiff

The sad truth is that despite the best efforts of monetary economists everywhere, fundamental misconceptions about inflation remain entrenched in government, business, and the media.

Inflation has only one cause and that is the Federal Reserve itself.
In the United States, the supply of money and credit is regulated by the Fed. Since inflation is by definition an increase in the supply of money and credit, only the Fed can create it. If the money supply were held constant, increases in some prices would be offset by decreases in others.

For example, on Wednesday the government told us that consumer prices as measured by the CPI rose by only 2.8% over the past year. My estimate is that the actual rise was at least three times as great.


Unknown said...

I think I know why there is such a difference.


Think about this. How do you save? Hmmm... Knock down inflation, and thus you don't need to spend more on social security, and you can keep printing money, and, and, and...

Interesting, no?

Unknown said...

The article mentions inflation only being tied to how much currency is in circulation, but I imagine you would also have to take into account the number of people using that currency. If you held the amount of currency constant but removed half the population, would that not also cause inflation?

Anonymous said...


So what does a person do? With raging inflation - you want to buy hard assets - gold, land, etc.

Anonymous said...

A further problem is that if inflation isn't measured properly it gets counted as economic growt. This is especially true in times of financial bubbles.

Lets take an example. A house gets build in 2001 and sells for 200k, so the contribution the the GDP is 200k. In 2005 an identical house gets build further down the road and sells for 600k. Despite the fact that the amount of value (the house) is the same as 4 yeas earlier, the contribution the the GDP is 3 times higher since housing isn't counted as inflation.

gregoryw said...

I think I figured out what is going on this morning on my way to work. Bear with me.

Banks are involved in SIVs to make money; namely they buy asset backed paper (CDO's) on a long horizon and issue commercial paper on a short horizon, then pocket the difference. The CDO's pay a higher rate and until recently had a stable NAV.

The Fed's job is to make sure the banking system is stable. By lowering rates, they make sure the $400B in SIV bets banks made aren't out of the money. Because if short term rates goes higher than the long term rates locked in on those CDO investments, the whole thing is a money loser.

The credit markets froze because nobody wanted to lend short term money to a bank that might give it to a SIV that was about to blow up.

The M-LEC super SIV might be a plan to lock as much capital in as possible for as long as possible at the Fed's currently low rates, because they might not stay low forever. At the same time, they'll buy up all the distressed CDO's they can. The lower the NAV, the higher the yield on that toxic waste.

Two lessons: banks always make money; and the Fed isn't going to let $400B go out of the money.

Anonymous said...

CPI is the ace up the government's sleeve. As long as it can say with a straight face that inflation is running under 3%, the vast majoprity of Amerikans will not question government spending or monetary policy.

Just look at what John McCain said during the Republican economics debate a couple of weeks ago. When asked about monetary policy, he basically punted to the Fed, saying that he'd leave the driving to the experts. Then he said that he'd like to appoint Alan Greenspan to be an economic advisor, and that he wished interest rates were at 0%. Sam Brownback said something similarly assinine about Greenspan and Bernanke being economic sages. AND THESE GUYS ARE U.S. SENATORS!

This is the main reason I like Ron Paul. He's the only candidate who understands how the Fed works and why monetary policy is just as important as fiscal policy. If one of the "top tier" candidates conveyed a similar understanding, I might be inclined to support them.

Anyway, iTulip has a great article where it calls bulls#!t on CPI:

"The CPI computation apparatus of the BLS is completely superfluous--price levels are and always have been a direct factor of the money quantity. This is a damning critique of the economic establishment, which expressly dismisses the money quantity theory of Austrian economics (because it is politically inconvenient). So feel free to add the budget of the CPI computation subunit of the BLS to your "government waste" roster."


Here is a link to the BLS website. It looks like it was made on a Tandy TRS 80. Also, it's really hard to use, by design, I think.


Like my dentist says, the government will lie straight to your face, but it will tell you that it is lying and what it is lying about.

Paige Turner said...

RE: The US government, pure and simple, is lying to you when it comes to Inflation

Here is a detailed look at the US government's Web of Deception.


Anonymous said...

Those shadowstats are BS too.

In the late 90's I sure didn't experience inflation anywhere near how it is now.

In fact I noticed how stable most prices seemed to be for years even though the economy was doing well.

Oh yeah, in the 1990's CPU's got alot more megahertz each year. (2x every 18-24 months remember?)

Did y'all notice that's stopped?

3GHZ is it.

Anonymous said...

"The CPI computation apparatus of the BLS is completely superfluous--price levels are and always have been a direct factor of the money quantity.

In fact, this is also bullshit as well.

This is what some serious (i.e. not larry Kudlow) economists have looked at for quite a while. You know, the ones who try to use real data.

The correlation is weak, and essentially useless for setting useful monetary policy and predictions, which is why it was abandoned in the 1980's.

The primary reason is that the 'velocity of money' which transforms raw quantity into the actual 'usefulness and potency' (roughly) is unknowable and hard to measure.

On the other hand, the price of money (rates) is very easy to measure.

People have this belief that Austrian economics is like Einsteinian physics, or even more, like the Ten Commnandments.

It just ain't so.

It's a Calvinist, moralistic message that appeals to some for that reason, not always empirical fact.

The Austrians have been actually wrong about a fair number of things.

Anonymous said...

Thought i heard greenspan predict double digit interest rates soon, and thought he might know how to do the same job as bernanke, or one mechanic saying the problem is a flat tire, while the second opinion sdays the problem is a bad fuel pump?????????????//

Anonymous said...

So what does a person do? With raging inflation - you want to buy hard assets - gold, land, etc.

Sure--Don't spend recklessly and buy hard assets. In addition, now is the time to start saving as much of our income as possible. Start living as though we're already in Depression II. It's just around the corner anyhow....

Anonymous said...

If I could sit in my basement an punch out $100 bills all day and spend them, would there be inflation? Correct. Do you actually beleive that the Gov't ISNT doing this? There is no regulation anymore and printing money won't create inflation without it.

Anonymous said...

Sorta like the difference between M1 (near zero growth) and M3 (over 10% growth).

I wonder if the idiots coming up with these stats are using M1 somehow?

Anonymous said...

If you are not told the proper inflation numbers then Fed considers that they are justified when they lower the interest rate.

Anonymous said...

One thing I know for sure, Paul Volcker would never tolerate this BS! If there's one thing that could save our economy in the long run, it would be Paul Volcker, or someone who would learn his lessons and do as he would do. Paul - we need you now, more than ever! Where is Paul when you need him?

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