Posted on 01/24/2007 2:43:53 PM PST by Tolerance Sucks Rocks
Just as U.S. senators are saying publicly that the government has lied to them over Iraq, yesterday’s Barron’s contains an interesting article saying that, “The U.S. government has an inherent bias in its reporting: Inflation is understated and growth is overstated.”
Our readers know that our sister publication, Financial Intelligence Report, has long reported that the government inflation figures are misstated to the down side.
Mr. Barry Ritholtz, of Ritholtz Research & Analytics, writes in Barron’s that when the Fed first cut rates to half-century lows, “first we reflated, then we inflated.”
We agree.
Ritholtz goes on to point out a worrisome example of what we have described as “the great inflation lie.” He quotes that our government thinks that, “rising oil prices are not considered inflationary, but falling oil prices are somehow deflationary.”
Last week, I interviewed Lou Dobbs of CNN. I asked him what he thought of the government’s cooked books on key statistics, like inflation. He replied, “I think you couldn’t be more correct. We worry about what we don’t know. I have no faith in the CPI numbers. I have no faith in the unemployment numbers. My faith has been shaken by the insistence on government not to reveal what our officials do know . . . this is something that should concern all of us.”
Such commentary from a widely renowned economic TV host should concern us deeply.
In November 2006, we devoted the lead article of FIR to this very topic: “The Dirty Little Secret: Stealth Inflation.”
In that article, we examine the five major tricks that the government uses to hide the true inflation rate. These include such absurdly dishonest practices as: Excluding those price rises that are considered “too volatile” or “statistically disruptive” Reducing actual prices to reflect some arbitrary “increase in quality” Ignoring quality decreases An amazing assumption that as prices of certain items rise, consumers will turn to alternatives, so allowing for such “awkward” items to be excluded from the calculation The exclusion of government subsidies from certain prices If all that does not add up to a cooked book, I do not know what does.
Sadly, the one result of a false government inflation figure is that our interest rates are set unrealistically low. This cheap money fuels massive borrowing.
The borrowing creates massive liquidity and a buying boom in such items as real estate, stocks, commodities, and consumer items. All these items rise in a dangerous price bubble.
The economy looks good for a time, but the day of reckoning starts to appear as the U.S. dollar gets hit increasingly hard in international currency markets.
In addition to cooking the key inflation measure (CPI), our government has ceased publication of M3, a popular measure of money supply that economists use as a gauge of future inflation.
Government figures have been “doctored” for many years, under Presidents Kennedy, Johnson, and Carter. The former President George H.W. Bush began efforts to lower the reported CPI systematically. Clinton set the stage for a new and lower inflation CPI.
So, our present government is not content to cook just the CPI. Their inflation lie is spreading to other statistics as they try to keep the lid on the real inflation rate and to expand on the inflation “cooking” expertise of President Clinton.
It is not just commentators such as Lou Dobbs and us who have expressed major concerns over stealth inflation.
As we have often reported, former Fed chairmen bankers, who are not known to rock the boat, such as in Paul Volcker and Alan Greenspan, have expressed their concern in public.
Even senior bankers, such as Gerald Corrigan of Goldman Sachs, and successful fund managers, such as Rudolph-Riad Younes of Julius Baer, have shared their growing inflation concerns.
Last week, the Bank of England raised its key rate to curb what it felt were early inflationary signs within the United Kingdom.
In the meantime, the Federal Reserve remains inactive and merely, “concerned” about inflation within the American economy.
So, as we have said many times before, beware of stealth inflation when planning your investment strategy.
PING!
"Last week, I interviewed Lou Dobbs of CNN"
Now there's a creditable source! NOT!
CPI is not an accurate indication of inflation because it reflects retail or consumer goods. Many things determine the actual risk of inflation such as government spending, taxation, foriegn balance of payments, level of investment, aggregate demand, etc....and Lou Dobbs IS NOT an economist and a fairly poor journalist (if that's what you call him)
"The borrowing creates massive liquidity and a buying boom in such items as real estate, stocks, commodities, and consumer items. All these items rise in a dangerous price bubble."
There is a problem with this statement. A buying boom certainly occurred (past tense) in real estate, but that buying boom was very uneven, geographically. There has been something of a boom in commodities, but I don't believe it was purely or even largely speculative. Stocks, while turning in the best showing of the decade, are still only modestly ahead of highs early in the decade, looking at the Dow. Consumer items have generally deflated, demand aside, due to offshore sourcing.
It wouldn't take much for a deflationary scenario to re-emerge. Standing pat on interest rates makes sense right now, from what I can see, even though a case can be made that the stimulus is still excessive.
"Government figures have been “doctored” for many years, under Presidents Kennedy, Johnson, and Carter. The former President George H.W. Bush began efforts to lower the reported CPI systematically. Clinton set the stage for a new and lower inflation CPI."
This "under-reporting" is taking longer to catch up with us than the Illuminati are taking to implement their world government.
Actually, there are indications that inflation is overstated due to ignoring the effect of productivity improvements over time. Maybe it all evens out!
[laughing too hard to respond]
Personally, I don't think the govt knows either.......
Someone just made up number and everyone nodded yes.
PS And it ain't an improved quality fakeroo.
Rising prices do not cause inflation.
Crash-Protection team, anyone?
I remember a couple of times the bond market moved with breathtaking heft during the Clinton years, the kind of heft that only large sovereign nations can muster.
And it was no mistake that some of the Wall Street trading firms were handing out rock star bonuses in its wake
"I checked with my spouse. She says whoever says there is little inflation does not grocery shop. For those of you who don't shop for groceries,"
I agree with her, and my supplies for my business have been really going up.
"Actually, there are indications that inflation is overstated due to ignoring the effect of productivity improvements over time. Maybe it all evens out!"
I think this is backwards.
Productivity gains in manufacturing mean the unit cost of the product drops. If the company doesn't lower its price, and they won't, what you get is a de facto price increase, which is inflationary. By ignoring this, the inflation rate is understated.
Seriously this should be no surprise to anyone. Even the slug at the 7-11 doesn't believe the Gvnmt numbers on inflation. A small loaf of bread here is $2.50 and it's crap. Inflation doesn't exist unless you are buying a house, paying for college, feeding a family or buying a new car.
Bump for later reading
LOL!
Inflation is an increase in the general price level. De facto, that's funny!
Dang, why is it that I'm always low on tin foil at times like this when I really need it --big time!
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