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.
There is another critical result, and IMO this is why inflation is underreported.
Any sane person knows the Social Security Trust Fund is a farce, and the day of reckoning for SS is around 2017, not 2042 or whenever the financial alchemists (turning debt into gold) at the SS Administration say it will run out.
So what is a way to deal with a thirty-percent projected shortfall that does not involved tar and feathers for politicians? Why, under-report inflation by a percent or so year after year so that COLAs don't keep up with the actual rate of inflation.
That has the additional benefit of negative compunding - each percent underreported builds upon previous years of underreporting. So that after 20-25 years, the shortfall is cured by boiling the frog slowly.
Don't believe me? Check out the concept of substitution. The government says if steak gets too expensive and you buy hamburger instead, well, that's not inflation, because you're still buying beef.
Of course, that "logic" can claim it's not inflationary if all you can afford to buy is beef Alpo.
I am afraid my son and the other children in the family will be sent the bill for today's consumption.
They still report M2. Use that instead.
"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."
Just a few examples:
Laptop computers have dropped 60% in price in the last 4 years, and plasma TVs are down 75% in 3 years.
Computer chips carry much more information today than ever, and at a lower price than ever.
Cell phones do more, and cost less than ever.
Your claim that companies "won't" lower prices when unit costs decline is obviously wrong.
But, this isn't enough data for financial experts and economists to discount any distortion this might create. Given that all of these facts and calculations are a matter of public record. And have been for decades.
The point of this article is that the Economy couldn't possibly be booming like it is, its just a lie and its ALL BUSH's FAULT!
And, its cold outside and perhaps the Government is lying about the Temperature so that people are less concerned about Global warming.
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