Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.
I love this site. John has done his homework. Even recreates on the M3 money supply the Fed stopped reporting.
He puts the current CPI at about 7.25%. Seems about right.
What this implies, for retirees getting indexed social benefits, is that if we have this kind of spread, say 7% real inflation vs. just 2.5% factored into benefit increases, is that over just 15 years, you will fall far behind. It will take $2.76 to buy what $1.00 does at 7% inflation over 15 years. But, your benefits will go up just under 50% if the government uses 2.5% as the offical rate.
Get ready to eat cat food. Or spend a lot of time at the food bank, if they still exist 15 years down the road.
Joined: Sep 25, 2004 Posts: 4530 Location: Boston, MA
Posted: Wed Apr 16, 2008 11:17 pm Post subject: Re: CPI updated - is it believable?
I think that's how they plan on funding Social Security.
I did the calculations out once and it turns out that if they lie about the CPI even by as little as 1% per year, the savings become MASSIVE in 40 years.
The system becomes sustainable well into the next century if they are off by 2% a year.
And they are currently off by 3%-4%.
That inflation pays for a lot of Social Security checks in 2060.
I was going to add a couple thousand dollars to an IRA this summer... But screw it, I'm going to play the markets with a food ETF. _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Was wandering around and just noticed John Williams the SGS guy was the latest guest on FSN, if that's of interest. _________________ Cogito, ergo non satis bibivi
I will not abide another toe.
Posted: Thu Apr 17, 2008 2:01 am Post subject: Re: CPI updated - is it believable?
Forney2008 wrote:
A couple of questions I have to ask are 1. When the U.S did these adjustments to reduce the rate of inflation via "hedonics" and substitution methods, did they reduce the inflation rate data in proportion in the previous decades such as the 60s and 70s? Second question is, does Europe or other Democratic countries use hedonics to reduce the inflation rate? 3. If inflation is really 6 or 7 percent instead of 3 or 4 percent would that mean that the economy during most of G.W.B terms and even Bill Clinton's terms in office were in recession most of the time? Would skyrocketing debt be the mirage that made people and businesses seem wealthier even as the economy was hardly growing if inflation was and is higher, thus G.D.P gets deflated down?
You've got it. Our stats are crap too, based on a "basket" that is added to and taken from. It seems whenever things get a little embarrassing, out goes cheese, in goes an iPod. Because we are all buying iPods now. That is overstating the case a little, but you get the idea. And yes, for years debt has allowed everyone to not only tread water but live it up. By rights we should have been finished in 2002, everything since then has been froth. _________________ "The American people are watching the numbers climb higher and higher at the pump and they're waiting to see what the Congress will do." - George W Bush
Joined: May 18, 2006 Posts: 4329 Location: Minneapolis, MN
Posted: Thu Apr 17, 2008 8:19 am Post subject: Re: CPI updated - is it believable?
Tyler_JC wrote:
I think that's how they plan on funding Social Security.
I did the calculations out once and it turns out that if they lie about the CPI even by as little as 1% per year, the savings become MASSIVE in 40 years.
The system becomes sustainable well into the next century if they are off by 2% a year.
And they are currently off by 3%-4%.
That inflation pays for a lot of Social Security checks in 2060.
I was going to add a couple thousand dollars to an IRA this summer... But screw it, I'm going to play the markets with a food ETF.
Pretty much all government employees get the same yearly CPI increases. Also, many corporations use the same means test.
Posted: Mon Apr 21, 2008 6:44 am Post subject: Re: CPI updated - is it believable?
Tyler_JC wrote:
I think that's how they plan on funding Social Security.
I did the calculations out once and it turns out that if they lie about the CPI even by as little as 1% per year, the savings become MASSIVE in 40 years.
No longer are we like those savages of yore that had to actually pour contaminants into the metals of coins to debase a currency. Now we have a myriad of fantastic, digital options for evaporating wealth. Think of the energy savings of not having to recall and melt all those coins! What a wonderous age!
And unlike the days past where you could hire a street urchin to lick your metal coins to test if they were filled with lead, our glorious new system offers no such proof. You could do the calculations yourself and put them in a local paper or on a website. But they get to put their numbers on the TVs, websites, and in ALL the papers. And they have some solid theories to base these numbers on as long as you are willing to accept 2 small, tiny assumptions, namely that energy use will strongly tend to increase and that all environmental externalities can be ignored. And if you don't accept those positions you won't be talking to any of those TV viewers.
But everybody knows the truth...
Quote:
Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died
But I cannot see people falling for this for 40 years. At some point, someone will say, "Hey! My Social Security check now buys 1 loaf of bread!" It isn't just that you loose the 3-4%. In an inflationary situation, the yearly reassessment cycle means that you must chase a rising inflation. Let's say you (and many, many others) get $100 for bread that costs $103. (we'll leave inflation at 6% and skimping at 3%). By the time the year ends, that bread will be $109 but you will only get an increase in the payment to $103. And by the next year you are chasing $115.50 bread. And if the inflation gets worse, it gets worse for you faster. How long can a thing like that last?
I think the length of time that can last is mostly determined on how desperately people cling to comfortable lies. It is definitely not boring. _________________ EntropyFails
"Little prigs and three-quarter madmen may have the conceit that the laws of nature are constantly broken for their sakes." -- Friedrich Nietzsche
Posted: Mon Apr 28, 2008 5:34 am Post subject: Re: CPI updated - is it believable?
I think it is called the Consumer Price Index and NOT the Commodity Price Index? It took me all of 30 seconds to find the breakdown of the BLS CPI and paste it here.
breakdown of the bls cpi
So if the government is trying to hide their tracks they are not very good at it? ; - ))
Assumably if rents are a large component of CPI calculations (43%), and if rents and housing cost equivalents (shelter 33%) are falling then this is dampening CPI increases?
If I read that table correctly then housing equivalents are down 9-10% so far this year? That is going to offset some inflation elsewhere.
Needless to say if you depend on imports of petroleum, and run a structural trade deficit for 35-years, then the value of the US dollar is going to be debased and cause imported inflation to be higher. That is a wealth transfer from the domestic economy to the rest of the world and it has been going on for generations.
But given that the US runs persistant budget deficits - federal, state and municipal - and has huge unfunded future liabilities to service (someday) you have to be happy that the government is under reporting true inflation or not? I mean who exactly is supposed to pay for those COLA increases on all those unfunded pension liabilities? _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
"The Consumer Price Index, the government's key inflation measure, rose 0.3%, compared to February, when prices were unchanged. The gain matched the forecasts of economists surveyed by Briefing.com."
- Just up 0.3% in a month, overall? Thus, it cost you just $100.30 for what cost you $100 in February. Does this match anybody's perceptions?
"The price of energy jumped 1.9% percent in the month." So, in other words, if a typical consumer paid $3.20 for a gallon gas in February, that same gallon would have cost about $3.26 in March, Up about 6 cents. Does this match anybody's exprience? I saw gasoline rise 6 cents a gallon in just one week in Florida in March.
I've been really fascinated with economics as of late, and the more I read about the subject the more I realize that its too complex to try and write out one equation to define an economic term like CPI.
What many economists seem to want to try and do is model thing just like they do in physics with fundamental laws. For example
F=ma
or
E=mc^2
interactions between people are not so simple things, and often depend upon a series of cascading conditions. So if I was going to try and make an accurate math model of human interaction (which is way beyond my own math skills), I'd take idea from quantum mechanics, which basically is just calculating the probability or a less fancy terms would be "odds"
people don't seem to understand, that a something like the CPI is basically just an educated guess, with lots of error, because its impossible to have a CPI calculation that accounts for all variables.
No if you're asking could the CPI be better calculated with more accuracy, the answer is "yes" but the problem is if ya change the CPI equation too much, then I see a problem of trying to compare a 2008 CPI based on a basket of goods (which might have items we take for granted like computers and cell phones), with a 1945 CPI (which did not have items like a computer). Think about the fact that in 1945, some leading minds said all the world needed was 5 computers, back then the "bomb" which was used to crack the enigma codes was one such computer, that cost in todays dollars hundreds of millions. But now an iPod touch has hundred of times the computing power of WWII computers, yet costs one one millionth the price. _________________ "I'm 100% sure that unsustainable conspicuous consumption of natural basic resources will eventually lead to a proverbial hell on earth for those people who get stuck with the mismanagement mess of mankind not being stewards of the environment!"
"...the improved inflation report Wednesday gave stocks a boost.
Consumer Price Index:The CPI rose 0.2% in April, versus forecasts for a rise of 0.3%. Stripping out food and auto sales, CPI rose 0.1%, versus expectations for a rise of 0.2%. Food prices played a big role in the rise in prices, posting the biggest jump in 18 years."
So, the biggest jump in food prices in 18 years (and likely fuel isn't too far behind) only results in a 0.1% difference between the "core" CPI change and the real CPI? Who really believes the cost of living only went up by 0.2% month over month?
Posted: Wed May 14, 2008 8:11 pm Post subject: Re: CPI updated - is it believable?
--understating by at least 5% (annually) - nothing surprises me anymore. _________________ "It's called the American Dream because you'd have to be asleep to believe it."
Posted: Thu May 15, 2008 2:19 am Post subject: Re: CPI updated - is it believable?
You got me? I could not believe those CPI numbers yesterday either? Imported inflation is running at 15.4% year on year. Crude started April at $100 got as high as $120 and closed the month above $110. That should have been a 10% increase and the price of crude is approximately 50% of the price of gasoline, so at least 5% being conservative. I cannot figure out their methodology? _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Thu May 15, 2008 6:39 am Post subject: Re: CPI updated - is it believable?
entropyfails wrote:
...
But I cannot see people falling for this for 40 years. At some point, someone will say, "Hey! My Social Security check now buys 1 loaf of bread!"
....
Social security and probably a lot of other government pension plans *technically* get adjusted for inflation but using the government's "official inflation statistics". There's a lot of people out there who think that working for the government and getting a pension plan is a "guaranteed" ticket to a secured retirement........they're going to learn a very bitter lesson at a late age in life. The timing could not be any worse.
Posted: Thu May 15, 2008 6:54 am Post subject: Re: CPI updated - is it believable?
FWIW
Quote:
Five Things You Need to Know: The Inflation Hysteria
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Consumer Inflation Reaching Hysteria Levels
The Consumer Price Index rose a less-than-expected 0.2% after a 0.3% gain in March, the Labor Department reported this morning. But I just bought a loaf of bread for $2.59, a gallon of milk for $4.58 and spent $80 filling up my car with gas. Clearly, all government inflation data must be a conspiratorial lie perpetuated by bureaucrats and politicians intent on keeping us in the dark about our own checkbook balances, right?
Well, far it be it from me to defend bureaucrats and politicians - certainly anyone with a stake in conjuring up votes from Americans has a vested interest in underreporting inflation - but the Consumer Price Index, flawed as it may be, is just a data a red herring, a smokescreen, a distraction. Simply put, increases and decreases in the Consumer Price Index are the least of our "inflation" problems.
2. What Is Inflation?
The real issue is that the vast majority of us don't understand what inflation really is. Now, we do understand what it means when the same trips to the gas pump in the car require more dollars to fund, or when the same amount of groceries require more dollars to carry out of the store, but these are merely symptoms of inflation.
Today we are in the midst of an episode of hysteria over the symptoms of inflation in two areas; food and gasoline. Some decry the lunacy of the Consumer Price Index, a government measure they say purposefully and willfully understates inflation. Some focus on inflation expectations, as if the mere expectation of continued inflationary symptoms was itself inflationary (this is akin to expecting hair growth to fuel hair growth).
What is inflation? It is actually very simple. It is an increase in the quantity of money and bank notes in circulation.
Where is the confusion? Ludwig Von Mises described it this way:
"People today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation."
3. So, What Do We Do Next?
So, the question before us is not, Are food and energy exhibiting symptoms of inflation? The question is what happens as a consequence of those symptoms. And here is where we see a massive disconnect emerging.
Today's "inflation" is illusory. It is the tail end of the Federal Reserve's mirage of economic production; credit creation. The mechanism of transfer between the Federal Reserve and the consumer are banks. (It should be noted that the rise of consumer lending units, and the dependence on them (at least until late last year) by companies in the original business of selling tangible products, companies ranging from General Electric (GE) to General Motors (GM) and at one point even Target (TGT), are illustrative of the efficacy of the credit creation and transfer mechanism between the Federal Reserve and the people). And so the potential for this credit creation to fuel more inflationary symptoms is dependent entirely on the willingness both of banks to lend and consumers to borrow.
That is why this debt crisis is ultimately so deflationary. It chokes off credit at the nozzle while the hose (banks' balance sheets) itself is leaking.
Are you paying more for gas? Yes. Are you paying more for food? Certainly. The question is what are you going to do about it. Our bet is you are not going to borrow and spend more. The consequence of credit creation and a crisis of unproductive debt is deflation. This is not an event; it is a process. Step one is the process of banks unwinding debt. Meanwhile, today's symptomatic
inflation in some high profile categories paves the way for tomorrow's unwinding of debt by consumers. If the unwinding of debt and tightening of credit for corporations is merely a whisper of deflation while symptoms of inflation persist, the unwinding of debt by consumers will be a roar.
Source: Minyanville's Kevin Depew: Five Things You Need To Know _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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That is overstating the case a little, but you get the idea. And yes, for years debt has allowed everyone to not only tread water but live it up. By rights we should have been finished in 2002, everything since then has been froth.
