Check this out regarding inflation and the government's attempt to cover up reality....
http://bigpicture.typepad.com/photos/uncategorized/2008/05/08/bizinflate430_sm.png
This seems a little extreme, but worth considering in light of the picture I linked to above, and considering what is happening to the dollar - and thus the price of oil and food:
Washington's Great "No Inflation" Hoax
Posted May 8, 2008 | 10:00 AM (EST)
Kevin Phillips
Billionaire California bond manager Bill Gross calls it "a haute con job." Bloomberg News columnist John Wasik describes it as "a testament to the art of economic spin." More and more shoppers and consumer simply disbelieve it.
The subject of this scorn is the federal government's vaunted Consumer Price Index or CPI. Americans are now beginning to understand that this indicator has its own share of gimmicks not unlike a sub-prime mortgage or the six pages of fine print that accompanies your credit card agreement.
Some of these CPI ingredients -- product substitution weightings, "hedonics" (price reductions for added product quality or satisfaction), and use of owner's equivalent rent (instead of home ownership costs) -- have a comic aspect suitable to mockery by Bill Maher, Stephen Colbert or Jon Stewart. But in a larger sense, they're not remotely funny. That's because the federal minimalization and misrepresentation of inflation, pursued statistically over the last 25 years, has been the main buttress of Washington's over-favorable and self-serving portraiture of the U.S. economy.
Distortions aplenty have followed. Some of the most pernicious include the shortchanging of federal pension and Social Security obligations and cost of living increases, a parallel shortchanging of cost-of-living increases in wage contracts tied to the federal CPI, the suppression of equitable interest payments on bank accounts and certificates of deposit, and the camouflaging of weak U.S. economic growth through inadequate adjustments for inflation. The benefits to the executive branch in Washington jump out -- huge annual federal savings on Social Security and pension outlays, as well as on the amount of interest paid on the federal government's multi-trillion-dollar debt. Some $250 billion a year could be involved.
If many individuals are losers, many businesses and financial institutions have been winners. Minimal cost-of-living increases favor corporations, while low interest rates make money cheaper to the financial sector. In particular, the gargantuan $10 trillion increase in financial-sector debt since 1994 could become unmanageable if mounting inflation forced borrowing costs up to 8% or 9%. And it is axiomatic regarding equities that when rates rise in the bond market, that competition usually undercuts stock market values.
In short, there have been three big gainers from understatement of U.S. inflation: the federal government, wage-paying businesses and the institutions and markets of the swollen U.S. financial sector. But skeptics have a weighty counter: Okay, it's easy to understand how they all might profit from understating inflation. But if the understatement is patently false, how can they hope to get away with it?
In fact, the belief by many conservative U.S. economists that inflation is under control, despite global indications to the contrary (including soaring commodity and energy prices), has a major ideological component -- their fidelity to monetarist economic principles (that only money supply expansion can create inflation) and to the Efficient Markets Hypothesis (that markets process all available information, so that if inflation were serious, markets would have reacted already). As late as January, monetarists on the Federal Reserve Board, notably Chairman Ben Bernanke and colleague Frederic Mishkin, believed in the new-version CPI and argued that U.S. inflationary expectations were safely "anchored."
Financial economists and money managers generally agree. A late April survey of 120 U.S. institutional money managers by Barron's, the financial weekly, found that on average, they predicted a CPI inflation rate of 2.72% in December 2008 and just 2.79% in December 2009. Elsewhere in the world, central bankers and politicians are worrying about another wave of commodity inflation akin to that in the 1970s, but U.S. money managers take comfort in the Efficient Market Hypothesis and in the wisdom and sanctity of the CPI.
Critics, by contrast, smell a potential disaster. Oil is up over 80 percent in the last twelve months. The New York Times' consumer reporter, W.P. Dunleavy, wrote on May 3 that his own groceries now cost $587 a month, up from $400 a year earlier. That's a 40 percent increase. Reports in the financial press make frequent reference to foreign investors who distrust the U.S. dollar because they calculate true U.S. inflation at 6% to 9% including food and energy.
California economist John Williams, who runs an organization called Shadow Statistics, contends that if Washington still used the CPI measurements applied back in the 1970s, inflation would be in the 10 percent range. My own analysis, set out in much more detail in an article in the May issue of Harper's, comports with that of the cynical foreign investors.
Therein lies the danger. If the current inflation rate is really 6-9 percent instead of the 2-3 percent claimed by government and most U.S. money managers, then Washington's official estimates that the economy still grew at a rate of some 0.6 percent in the first quarter of 2008 become nonsense. Subtracting a 6-9 percent inflation rate from nominal GDP growth would identify an economy that was deteriorating and shrinking, not growing. Concerned foreign dollar-holders would become even more concerned.
In theory, a vigilant Congress might want to hold hearings, but in practice I suspect not. Democratic presidents (notably Bill Clinton) have been involved in the numbers game along with Republican administrations. Neither party has clean hands. Far more likely that any serious investigation will be mounted clandestinely by central banks or sovereign wealth funds in places like China, Singapore and Saudi Arabia as part of their ongoing study of just how much longer they can continue to support a deteriorating U.S. dollar. It is not a happy prospect.
http://www.huffingtonpost.com/kevin-phillips/washingtons-great-no-infl_b_100719.html
Official government report and forecasts on inflation are so broad and don't boil it down to what affects the average U.S. family. What directly impacts me are gasoline, electricity, natural gas, grocery store food, and health care prices. If inflation indexes would only include these items, we would find inflation rates soaring in the U.S., and much higher than the government reports indicate, IMO.
quote:
Originally posted by Steve
Official government report and forecasts on inflation are so broad and don't boil it down to what affects the average U.S. family. What directly impacts me are gasoline, electricity, natural gas, grocery store food, and health care prices. If inflation indexes would only include these items, we would find inflation rates soaring in the U.S., and much higher than the government reports indicate, IMO.
The Goobermint figured out that their best way to manage inflation was to manipulate the very DEFINITION of the term. How Clintonian! It depends on what the Definition of "Is", is. Right, Bill?
The smart money (foreign central banks, large investment houses, etc.) know that the true rate of inflation has been understated for YEARS.
An economy CANNOT have a 300% increase in the price of gasoline in the past 8 years, a 400% increase in the price of natural gas (used in home heating and in FERTILIZER), deregulated electricity rates with soaring electricity costs in many states, 25% annual increases in health insurance premiums, soaring prices of copper, steel, gold, etc, without escalating inflation. And, I'm not even mentioning sharp increases in milk, bread, eggs, fresh vegetables, rice, etc.
That has almost always happened when we had a War, and we've been in a state of War since 9-11-2001.
Look at what happened when price controls ended after WWII. Inflation soared post-WWII.
During the VietNam War, inflation took off afterwards. Remember the WIN buttons?
Whip-Inflation-Now buttons.
It is simply not possible, unless the Goobermint definition of Inflation is so flexible that it can be twisted any way the statistician wants it, that we haven't been suffering from high inflation rates for years.
[:O]