This page has been archived and commenting is disabled.

Guest Post: Inflation Is So Much Worse Than We're Told

Tyler Durden's picture




 

Submitted by Chris Martenson

Inflation Is So Much Worse Than We're Told

Inflation is actually much higher than what the BLS claims it is; something that purchasers of college tuition, pharmaceuticals, or health insurance know all too well.

To give the BLS some credit, they must try and estimate a single rate of inflation that applies to everyone equally.  But that is a completely impossible task. An octogenarian living in Seattle on a meager pension and taking lots of prescription medications will have a totally different inflation experience than an 18 year old living in their parent's basement eating Ramen noodles. 

But even after spotting the BLS some slack, there are some enormous and glaring errors in their methods that render the official inflation measure hopelessly - and dangerously - inaccurate. 

In this article, I am going to reveal how US inflation numbers are badly understated, how this practice short-changes institutions and fixed-income individuals alike, and why this means fiscal and inflationary train-wrecks are the most probable outcome for the US -- and, by extension, the globe.

Why This is Important

As a refresher, inflation in the US is calculated by the Bureau of Labor Statistics (BLS) in a measure called the Consumer Price Index, or CPI. It is used by the Federal Reserve to justify its money printing policies, by the federal government to calculate cost-of-living adjustments (COLA) for the entitlement programs (e.g., Social Security), and to set the interest rate on inflation-adjusted bonds known as TIPS. Indirectly, the CPI influences interest rates, the stock market, and a host of salary and pension negotiations each year. If the CPI is too low, even by a single percent, the impact is in hundreds of billions of dollars.

And from a financial planning standpoint, the impact is just as dire. If you are putting away money for a child for college, the rate of inflation you apply to the tuition has an enormous impact on the amounts you'd need to put away. In eighteen years, a current $40,000/yr tuition will become $66,000/yr at a 3% rate of inflation, but $107,000/yr at a 6% rate of inflation. The same logic and results apply to retirement planning.

Further, the cost estimates surrounding the current health-care debate in the US are founded on inflation projections that draw upon prior CPI readings for their baselines.

It is vitally important that our assessment of inflation be as accurate as possible.

Unfortunately, the CPI understates inflation, which is much higher (worse) than we're told.

Understanding exactly how this is accomplished will help clear your mind and lead to more certainty in your decisions.

Caveat Emptor

Every country fights its last battle, and in the US, unlike Europe, the prior enemy was deflation, which ravaged the land in the 1930's. 

Seeking to avoid that fate repeating itself, the US Federal Reserve routinely justifies the continuation of its massive money printing experiment (which goes by the all-too-fancy title "Quantitative Easing") by citing an apparently low rate of inflation, as provided by the BLS.  

Here's a recent example of such justification at work:

Recent data show consumer price inflation continuing to trend downward. For the 12 months ending in November (…) inflation excluding the relatively volatile food and energy components--which tends to be a better gauge of underlying inflation trends--was only 0.8 percent, down from 1.7 percent a year earlier and from about 2-1/2 percent in 2007, the year before the recession began.

(Source)

A 0.8% yearly rate of inflation (ex food and energy, of course) that is trending downwards certainly makes inflation sound like a non-issue and supports the idea of dangerous deflation lurking nearby. 

Indeed, the Fed is right, after subtracting out the items that are most responsible for keeping everybody alive and comfortable (food and energy), the rate of inflation as reported by the BLS seems to be locked in a mortal tailspin…as long as you only look at the narrow range marked by the red line below:

(Source)

Well, the average person would be well within their rights to wonder what all the fuss is even about. After all, inflation is now within 0.06% of its ten-year average, and unless you are calculating the trajectory of a newly launched Mars probe, 0.06% is not really that big of a deal. But the Fed is terrified of it.

Backing up this view is the BLS, which provided us with these data for December 2010:

(Source)

According to the BLS, the average household experienced an exceedingly tame rate of inflation of only 1.5% between December 2009 and December 2010. That is, what used to take $100 to buy in 2009 requires $101.50 in 2010; only a dollar-fifty more. Once we strip out food and energy, the cost index plummets, requiring only 80 cents more than a year ago to buy the same basket of goods and services.

The only problem with this view is that it is utterly, provably, and demonstrably wrong.

I can reveal how with one relatively simple example.

[Note to any journalists reading this. My standing offer to you is this: I will spend as much time as you wish going through this data if you feel that understanding it more completely will help your current or future reporting on the issue.]

Health Insurance and the CPI

As I mentioned in the Crash Course chapter on inflation, there are three major statistical 'tricks' that the BLS imposes on the Consumer Price Index. They are hedonics, which tries to account for improving quality in products over time, substitution, which is the act of switching to lower-cost items when prices surge on preferred items, and weighting.  

For less-than satisfactory reasons, the BLS only weights healthcare at 6.5% of the CPI, although it represents 17.6% of the total GDP. That's a big problem, because healthcare is the biggest and most consistent source of inflation over the years.  

A big portion of the underweighting of medical care can be attributed to a single category: health insurance, which stands at just 0.49% of the total CPI reading, or less than half a percent:

(Source)

According to the BLS, the average family is projected to have a total exposure to rising health insurance premiums at a rate of only 0.49% (out of 100%). Given a median family income of $49,077 (the 2009 value), this means that the BLS assumes that the average family contributes just $239 dollars per year towards their healthcare insurance premiums. Yes, I wrote per year, not per month. That's not a typo.

Worse, and compounding this error of weighting, the BLS has somehow calculated that the cost of health insurance has been steadily falling for the past three years:

(Source)

Apparently health insurance rose from 2005 to 2007 and has been in a sustained downtrend ever since. By this measure health insurance is now just 4% higher than it was in 2005, a full five years ago.

In the full report on this subject I go through the supporting data that reveals just how egregiously off the mark this BLS data set is (the gap is well over 100%), but I hope that everyone knows just how wrong this data has to be without much more evidence.

In just those two errors, underweighting healthcare and inexplicably concluding that health insurance has been steadily falling for three years, by my calculations the BLS is understating inflation by a full three percent. 

If three percent does not strike you as a lot, go back and re-read the example about college tuition I provided in the sixth paragraph of this article.

Conclusion

For the reasons above, inflation is much higher than proclaimed. Yet we are being told, on a near-daily basis, that the massive money printing and deficit spending activities of the Federal Reserve and federal government, respectively, are not stoking inflation. At least, 'not yet.' Since the Fed uses the CPI as a key indicator in its decision making, the big risk here is that Bernanke will not begin to turn the wheel on the monetary supertanker until after it is too late. 

 

Anybody engaging in any form of long-term financial planning - be they individuals, pension trustees, or budget setters - needs to be aware of the flaws and limitations of the official US inflation measure.

All COLA increases based on the CPI are too low. Any health care policy analyses that rely on the CPI (which is most) will vastly underestimate the true costs and are doomed to trap the nation in a regime of rapidly rising costs and deficits.

We are risking much by systematically understating inflation including our reputation, market confidence, and even the dollar itself. 

Knowing the extent and mechanisms by which inflation is being underreported provides the savvy investor and professional alike with essential information that can guide their personal and financial decision-making. These are addressed in depth in the full report on this subject (free executive summary; paid enrollment required to access) at ChrisMartenson.com.

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 01/25/2011 - 12:46 | 902985 Henry Chinaski
Henry Chinaski's picture

I don't see how this can end well. 

Tue, 01/25/2011 - 13:26 | 903110 Quixotic_Not
Quixotic_Not's picture

I don't see how this can end well.

Oh, this will end very well for those lucky enough to be connected to the Golden Hoard on Fraud St.:

SEC CHARGES MERRILL LYNCH FOR MISUSING CUSTOMER ORDER INFORMATION AND CHARGING UNDISCLOSED TRADING FEES

Washington, D.C., Jan. 25, 2011 – The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith Incorporated with securities fraud for misusing customer order information to place proprietary trades for the firm and for charging customers undisclosed trading fees.

To settle the SEC’s charges, Merrill has agreed to pay a $10 million penalty and consent to a cease-and-desist order.

Without admitting or denying the SEC’s findings {i.e. guilt}, Merrill consented to the entry of a Commission order that censures Merrill, requires it to cease-and-desist from committing or causing any violations and any future violations of Sections 15(c)(1)(A), 15(g), and 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(6) thereunder {Merrill's gonna have to invent a new scam!}, and orders it to pay a penalty of $10 million.

http://www.sec.gov/litigation/admin/2011/34-63760.pdf

Just gotta love a country where the kleptomaniacs can rob the citizenry and count on the .GOV sweep their shit under the carpet, all without admitting a god damn fucking thing and only paying a trifle in tribute!

What a joke!

Carry on with your indignant anger and disgust ZHers...I'm sure the pigmen are shaking in their boots!  ROFL

Tue, 01/25/2011 - 13:51 | 903246 Captain Kink
Captain Kink's picture

And the govt. keeps the fine!  just getting their vig.

Tue, 01/25/2011 - 12:47 | 902991 papaswamp
papaswamp's picture

This is a fucking brilliant article! Thanks Chris (and Tyler).

Tue, 01/25/2011 - 13:07 | 903102 CrashisOptimistic
CrashisOptimistic's picture

No.  It isn't.

Why didn't he examine rent?  Rent is the largest single component of the monthly budget.  Why would he not examine it?

Tue, 01/25/2011 - 13:17 | 903137 dark pools of soros
dark pools of soros's picture

he's living in his mom's basement and doesn't care

Tue, 01/25/2011 - 13:26 | 903169 umop episdn
umop episdn's picture

I'd like to know why he only used BLS stats thru-out. The sooner we ignore the BLS, the sooner they go away...I hope.

Tue, 01/25/2011 - 13:34 | 903198 Rahm
Rahm's picture

The rent's too damn high!

Tue, 01/25/2011 - 13:56 | 903256 Captain Willard
Captain Willard's picture

Agreed.

This is a shitty article that accidently reaches the right conclusion. Any article on the CPI that doesn't discuss Rent and Hedonic Adjustments is technically flawed and cannot be taken very seriously.

Tue, 01/25/2011 - 20:13 | 904455 goldsaver
goldsaver's picture

Because, if he were to address all the ways the BLS BS's the numbers it would require several more pages. It is easier using a single more obvious to everyone portion of the BS.

I personally love substitution:
Prime Rib=>Hamburger=>SPAM=>Dog food. To the rocket scientists at the BLS its all the same.

Tue, 01/25/2011 - 12:49 | 902999 ZeeGerman
ZeeGerman's picture

To maintain cliche, "suck it up bitchez!"

Tue, 01/25/2011 - 12:50 | 903003 erik
erik's picture

BLS should be required to provide a more comprehensive inflation guide including each component reported separately.  I know that is a huge amount of work but the CPI and PPI are useless.

You're better off using futures charts for soft and hard commodities to get a feel for inflation's effects.  In the end, we all know it is money creation that is the driving force of inflation.

The Fed is essentially choosing to delay the eventual US default (by printing money) over the stability of half of the world's food supply.  At some point, the rest of the world will realize it and ditch the US dollar and US entirely.

Tue, 01/25/2011 - 13:08 | 903109 CrashisOptimistic
CrashisOptimistic's picture

BLS provides extensive detailed description of each constituent part of their measurements on their website.  They survey to determine weighting and then to determine the change of each item.

Why do these hand waving articles never examine rent?

Tue, 01/25/2011 - 13:32 | 903194 erik
erik's picture

Crash, thanks, I am aware that they provide that information right now, what I am after is a comprehensive and "practical" set of indicators.  The CPI and PPI just don't cut it.  John Williams shadow stats is a start.

Look, Case-Shiller has arguably usurped the power from the FHFA in terms of home price indicators.  We need the equivalent to occur for CPI and PPI. 

Tue, 01/25/2011 - 20:32 | 903235 GoinFawr
GoinFawr's picture

That Titanic has already hit its iceberg, yet the band plays on; for now. I'd wager that the tune will continue getting shriller and louder until the GS alumni infesting high positions at various nations' CB's start gettin' their walking papers, or rope neckties, depending on the country righteously asserting its sovereignty.

Tue, 01/25/2011 - 12:49 | 903004 iota
iota's picture

2011/12 is just gonna be ugly globally.

Tue, 01/25/2011 - 13:28 | 903175 KTV Escort
KTV Escort's picture

A few of my friends in China have their savings parked in bonds, and when they mature a good portion of it will go into PMs. Grains, veggies, fruit, eggs... all up quite a bit this past year, from WalMart to the informal street markets (first pic on link below)

http://chinapositive.blogspot.com/2011/01/changsha-just-explore.html

Tue, 01/25/2011 - 12:50 | 903013 johnnymustardseed
johnnymustardseed's picture

My insurance is going up 25% this year after 35% for the last two years..... I guess I must me a statistical anomaly.

Tue, 01/25/2011 - 12:53 | 903033 TruthInSunshine
TruthInSunshine's picture

Our health insurance has skyrocketed, and the co-pays, deductibles and other rules of the plan have been changed dramatically.

And we're profitable for the insurers...

Tue, 01/25/2011 - 12:59 | 903062 ZeeGerman
ZeeGerman's picture

Indeed... And that others saw their premiums reduced by 25% for the same conditions!! Fail

Tue, 01/25/2011 - 13:00 | 903068 Don Birnam
Don Birnam's picture

Another anomaly here. Rx drug deductible increased 75%. Aetna, I'm sorry I met 'ya.

Tue, 01/25/2011 - 13:07 | 903103 uno
uno's picture

friend had her health insurance (coventry) increase from 168/month to 272/month, no health issues at all

Tue, 01/25/2011 - 12:51 | 903018 israhole
israhole's picture

"An octogenarian living in Seattle on a meager pension and taking lots of prescription medications will have a totally different inflation experience than an 18 year old living in their parent's basement eating Ramen noodles."

How about a 40 yr old living in his parent's basement, like we're seeing more of every day?

Tue, 01/25/2011 - 13:04 | 903083 Robot Traders Mom
Robot Traders Mom's picture

Cute avatar douchebag.

Tue, 01/25/2011 - 12:51 | 903019 Oh regional Indian
Oh regional Indian's picture

Hedonics... wow, did not know that "Do ast thou will' was a mantra at the BLS too.

Bag of Lying Shits.

Bureau Of Lying Statistics

Bogus Lowballing Slackers

Hedonism, I'll think of you so differently now.

ORI

http://aadivaahan.wordpress.com/2011/01/21/accidental-lives/

Tue, 01/25/2011 - 12:52 | 903029 The Mighty Monarch
The Mighty Monarch's picture

"this means that the BLS assumes that the average family contributes just $239 dollars per year towards their healthcare insurance premiums. Yes, I wrote per year, not per month. That's not a typo."

Sounds like the basis for a SNL bit. I spend three times that amount per month for just myself and the wife, and this doesn't even count employer contributions. High-fucking-larious.

Tue, 01/25/2011 - 12:59 | 903061 johnnymustardseed
johnnymustardseed's picture

$2083.00 per month for me and my wife.

Tue, 01/25/2011 - 13:10 | 903116 CrashisOptimistic
CrashisOptimistic's picture

No, the BLS does not say that at all.  This is a terrible analysis.  Read the BLS website yourself.  This guy is doing nothing more than churning up subscription revenue.

Tue, 01/25/2011 - 14:11 | 903308 packman
packman's picture

That's my take as well.  Without having read the BLS data yet - I would imagine that the .487 "health insurance" line item refers not to health insurance premium, but instead to just to overhead costs.  If it referred to premiums, then the other numbers - professional services, hospital services, etc. wouldn't be so high, because the majority of those costs are paid for by insurance, not by the end user.

The BLS does have some questionable / controversial weightings in their formulas - but there's now way in hades they'd be that far off in one of the line items.

That being said - the overall total weighting of medical care only being 6.5% of CPI, whereas percentage of GDP being 17.6%, sounds very off.   What Martenson should really do is break those down item-by-item and compare.

 

Tue, 01/25/2011 - 13:16 | 903133 dwdollar
dwdollar's picture

$239 sounds right to me.  Many young families can't afford healthcare, therefore, they pay $0.

Tue, 01/25/2011 - 12:54 | 903036 apberusdisvet
apberusdisvet's picture

 

Even more reason why current PM prices are a joke (totally irrespective of the shortages becoming more apparent by the day).

Tue, 01/25/2011 - 12:58 | 903058 TruthInSunshine
TruthInSunshine's picture

Bernanke will put up the fight for his masters, who would never want to see an alternate currency to fiat take root.

An alternate currency to fiat - one that can't be produced by keystrokes, is finite or at least not supplied in vast amounts in nanoseconds, and that can not be easily tracked - literally represents the total loss of control for central planners, the elite and the beast.

Tue, 01/25/2011 - 13:05 | 903096 SheepDog-One
SheepDog-One's picture

No they'd never want that, except theyre calling for it. Bancor, anyone? http://www.zerohedge.com/article/us-postal-service-starts-quoting-sdr-do...

Tue, 01/25/2011 - 14:03 | 903283 Oh regional Indian
Oh regional Indian's picture

I'd missed that one is the top-horizantal article scroll loss. Thanks.

Startling but not surprising. 

ORI

Tue, 01/25/2011 - 13:12 | 903041 topcallingtroll
topcallingtroll's picture

An excellent summary.

however i didnt get to finish my post. Since it is a cpi number not all of the costs of healthcare will be attributed to the consumer. Its a lengthy explanation and more suitable to a blog rather than a small post to do the.explanation and fed.debate over healthcare cost allocation justice

Tue, 01/25/2011 - 12:56 | 903053 Fortunes Favor
Fortunes Favor's picture

This helps explain why the Chinese are clamping down. Watch for the Chinese equity market selloff to cause trouble here. China leads US mkts. http://rosenthalcapital.com/blog/2011/01/precious-metals-update-stock-market-strategy-perspective-and-correlation-breakdowns/

Tue, 01/25/2011 - 13:01 | 903076 gwar5
gwar5's picture

I just use Shadow stats. I don't trust anything the US.Gov or the Fed puts out.

Tue, 01/25/2011 - 13:14 | 903131 topcallingtroll
topcallingtroll's picture

The problems with shadowstats and the old system is that it probably overestimated inflation. Use both shadow.stats and the new numbers!

Tue, 01/25/2011 - 13:02 | 903078 Internet Tough Guy
Internet Tough Guy's picture

"Moffatt said premiums for physical gold had "doubled" in the past week, but declined to provide any figures.

http://www.perthmintbullion.com/blog/blog/11-01-12/Interview_With_Dow_Jo...

 

Tue, 01/25/2011 - 13:08 | 903087 TruthInSunshine
TruthInSunshine's picture

Just remember that dollars are fungible.

Whatever Bernanke thinks he gives with one hand, for now, is taken away, by the other hand (at least until it becomes apparent that his Keynesianism on Steroids & Methamphetamine madness crashes and burns).

Each incremental rise in  the cost of gasoline, grocery, insurance, tuition and other more 'inflexible' things is an incremental deduction in expenditures on retail, restaurants, hotels, travel, entertainment, and other more discretionary/flexible 'things.'

I'd imagine the war between commodity specs and retail is ugly behind the scenes, as commodity specs bemoan any hint of more regulation while retail screams bloody murder over bleak sales.

Tue, 01/25/2011 - 13:07 | 903088 Hook Line and S...
Hook Line and Sphincter's picture

 

There is NOTHING any of us can do to change the BLS-BS, so as I mentioned before, just treat inflation like a really good personal trainer. 

Soy - you shouldn't be eating this crap, it's an estrogen mimicker that will make you grow tits if your a man.

Ice cream- whaaaa, your ice cream costs more!

Coffee -  a non-necessity once you have weaned yourself.

Corn - Just what my GM craving body needs more of.

Oil - get a bike, lose some weight. Get a motorcycle and get there twice as fast. Peak is going to get you regardless of money printing.

Milk - for goodness sake, all mammals lactate. Get creative. Dogs, cats, wolverine, and that lovely lady at the super market who is lactating can produce quality nutritious milk you can drink if you ask nicely.

 

(Check your blood type, if you are o+ you shouldn't be eating wheat.)

 

Tue, 01/25/2011 - 13:10 | 903118 uno
uno's picture

"that lovely lady at the super market who is lactating can produce quality nutritious milk you can drink if you ask nicely."

 

A++

Tue, 01/25/2011 - 13:04 | 903089 tarsubil
tarsubil's picture

I distinctly remember milk being under 2 dollars last year. Same milk at same store is now $2.70+. That's +35% right? Grandma on social security is fine because her house decreased in value by 30%. That practically offset themselves. Phew, everything is going to be fine...

Tue, 01/25/2011 - 13:10 | 903115 taraxias
taraxias's picture

But, but, but......John Taylor said there's no risk of inflation !!!!

I'm so confused <sarcasm off>

Tue, 01/25/2011 - 13:10 | 903117 NRGTDR
NRGTDR's picture

now veggie riots break out in lower Manhattan:

http://humbleseed.com/blog/seedtv/the-vegetable-apocalypse/

 

Tue, 01/25/2011 - 13:16 | 903126 Ecoman11
Ecoman11's picture

Here is an alternative CPI index produced by Prof. Roberto Rigobon of MIT. He's created a BPP index that is tracked by millions of retail prices (online/offline) from around the world. Notice how the US BPP has been derailed from the CPI figures reported by the BLS. Quit analyzing government data cause it's useless at this point.  

http://bpp.mit.edu/daily-price-indexes/?country=USA

Tue, 01/25/2011 - 14:02 | 903280 TruthInSunshine
TruthInSunshine's picture

+100 and thank you for that link!

Tue, 01/25/2011 - 13:18 | 903141 csmith
csmith's picture

All "administered" prices that are driven by government fiat and/or credit continue to rise, as they have for 45 years. Prices determined in the quasi-free market and disconnected from government credit continue to fall. Enough money has now been printed, however, for even commodity costs (arguably the most market-oriented prices) to begin to get pulled up in the inflation tornado.

Tue, 01/25/2011 - 13:19 | 903142 Ye Ye
Ye Ye's picture

I hate to swim upstream, but personally I feel I'm experiencing deflation.  My mortgage has gotten cheaper.  Clothing is ridiculously cheap (partially thanks to me mastering flash sales).  Although I think groceries have gotten more expensive, I use the local farmers market heavily, and in practice since I've stopped eating out so my monthly expenditures on food have dropped relative to same time last year.  I buy just about everything else on Amazon and I have Prime.  I'm young and don't consume health care that much.

Paradox of thrift: without question, my habits are contributing to unemployment (e.g., negatively impacting restaurant and retail employment).  I'm certainly not in a hurry to run out and spend the extra cash I'm accumulating from frugality, so I'm _acting_ as if I think the dollar will hold it's value.

I'm the guy whose animal spirits BB is trying to revive with the printing press.  So far, no go.

Tue, 01/25/2011 - 15:04 | 903475 i.knoknot
i.knoknot's picture

yy,

i see apples and oranges being compared here.

while i commend you for your successes at lowering your own costs of living, you're merely vindicating the inflationists' theory as you actively work to avoid the prevailing trend.

you have to consider that you eat out less - QOL cost, and you (we) chase flash sales, pure time and energy that was available to you before this fiasco.

life has always gotten more expensive over time, but the recent change in rate/sentiment is changing your behavior. that's the very argument the BLS uses in their hedonistic adjustments. the same apple today costs more than it did yesterday, even if i am buying oranges. careful not to drink their kool-aid on this one.

cheers and best wishes out there.

 

Tue, 01/25/2011 - 15:52 | 903679 trav7777
trav7777's picture

you're making hedonic adjustments in your lifestyle.

This is precisely how the Fed and BLS claim we don't have inflation.  You are opting by choice not to eat out, therefore, they can claim that your food costs have decreased.  The reason you are choosing to do what you do is because costs have become unacceptable, which is classic price inflation.

Price inflation CAUSES hedonic adjustment behavior; so it is inherently specious to claim that there is no price inflation on account of it.

Everyone can't shop at flash sales; the retailers will go out of business.  But if people cannot afford the regular prices, then the outcome is the same.

I articulated this repeatedly over on TF years ago; the apparent fall in prices due to a falloff in spending will not and cannot last forever.  Once excess inventories are worked through in liquidation, there will be no more supply at that price point.  If retailers this Xmas stocked to a certain level of inventory and were unable to move it at profitable price points, they will stock less next year and so forth until they find a supply/demand equilibrium permitting them to stay in business.

One need only visit a place like Brazil to see this.  Prices there are astoundingly higher than would be suggested by the simplistic analysis that the US-centric wonks use to justify a precious FRN viewpoint.  Certainly, retailers there could sell far more units at lower prices, but those prices would be negatively profitable.

At some point, tags must reflect profitable price points; it's as simple as that.  If that means far less volume, then that is the way it will be.

You aren't acting as if your FRN is going to hold value; in fact, you are actually getting LESS for each recurring allotment of FRNs known as your paycheck.  And everyone else down the line is too.

If you tried to go and spend on whatever you wanted, you'd quickly run out of FRNs.

Tue, 01/25/2011 - 19:31 | 904356 ToddGak
ToddGak's picture

But really, you are experiencing inflation, and that's making you change your habits (not eating out etc.) 

Edit: whoops I see others already posted that.

Tue, 01/25/2011 - 13:19 | 903144 robobbob
robobbob's picture

great article

succinct and accessible

now, will you do a follow up explaining how the .gov figures gasoline, bread, milk, and electricity do not impact the average persons life? or do they base their modeling on everyone living in a Ted Kaczynski shack?

Tue, 01/25/2011 - 20:58 | 904532 andybev01
andybev01's picture

.

Tue, 01/25/2011 - 20:58 | 904539 andybev01
andybev01's picture

Since TPTB feast on human souls, they have no concept of gasoline, bread, milk, and they get their power from Satan.

 

Fri, 01/28/2011 - 15:26 | 913982 GoinFawr
GoinFawr's picture

Heh, for some reason that made me think of the following humourous interlude:

http://www.youtube.com/watch?v=hZdc_epHALU

Dave Foley with the same suit, but more satanism

http://www.youtube.com/watch?v=D80NLUcixPg&feature=related

 Enjoy

Tue, 01/25/2011 - 13:19 | 903145 Burnbright
Burnbright's picture

Well, the average person would be well within their rights to wonder what all the fuss is even about. After all, inflation is now within 0.06% of its ten-year average, and unless you are calculating the trajectory of a newly launched Mars probe, 0.06% is not really that big of a deal. But the Fed is terrified of it. 

I wish people would stop saying that the FED is scared of deflation, its bullshit. The FED uses the specter of deflation to make the argument for more money printing. If you owned and legally operated a printing press deflation would be like a free licence to print as much as you wanted. Bernake is much more terrified of the collapsing credit market which is the main source of money creation and inflation, which is why you see debt no longer being piled up by the populace but by the government. People became saturated with debt during the housing bubble so in order to continue the ponzi they had to have someone pick up the slack for the loss of loan creation and so the states via muni bonds and US treasury stepped in and took on more debt to increase spending. 

 

In other news, something I thought you all might find interesting. Supreme Court voids Constitution. 

http://news.yahoo.com/s/usnw/20110118/pl_usnw/CL31921_1

Tue, 01/25/2011 - 13:29 | 903180 paulbain
paulbain's picture

Agreed: www.ShadowStats.com is excellent.

-- Paul D. Bain

 

Tue, 01/25/2011 - 13:37 | 903209 Dr. Gonzo
Dr. Gonzo's picture

The cost for miners to pull an ounce of gold out the ground is now $1000. Inflation is everywhere.

Tue, 01/25/2011 - 13:43 | 903226 Gimp
Gimp's picture

With gas at $3.17 per gallon  and milk now $3.35 a gallon how can anyone in their right mind say there is no inflation?? 

 

Tue, 01/25/2011 - 13:59 | 903268 buzzsaw99
buzzsaw99's picture

I could stand to go on a diet anyway. It sucks for people with kids tho...

Tue, 01/25/2011 - 14:06 | 903292 Xibalba
Xibalba's picture

 

CFTC Delays 60-Day Notification To Assist Manipulators

 

http://www.roadtoroota.com/public/504.cfm

Tue, 01/25/2011 - 14:07 | 903294 Ahmeexnal
Ahmeexnal's picture

What do you worry about? Even if meat, wheat and other food products go up, what you get served will remain at a good price.
Of course, what you are being served is not entirely meat nor wheat...nor food:

http://www.foxnews.com/health/2011/01/25/wheres-beef-taco-bell-sued-ingr...

According to the suit filed by the Alabama law firm Beasley, Allen, Crow, Methvin, Portis & Miles, the YUM-brands owned chain is using a meat mixture that contains binders and extenders, and does not meet the minimum requirements set by the U.S. Department of Agriculture to be labeled as "beef.”

Attorney Dee Miles said the meat mixture contained just 35 percent beef, with the remaining 65 percent containing water, wheat oats, soy lecithin, maltodrextrin, anti-dusting agent and modified corn starch.

Tue, 01/25/2011 - 15:30 | 903592 TruthInSunshine
TruthInSunshine's picture

Attorney Dee Miles said the meat mixture contained just 35 percent beef, with the remaining 65 percent containing water, wheat oats, soy lecithin, maltodrextrin, anti-dusting agent and modified corn starch.

 

mmm mmm good. More anti-dusting agent burgers, please.

Tue, 01/25/2011 - 14:17 | 903330 YHC-FTSE
YHC-FTSE's picture

5*s for this article. Not only because I was harping on about the fallacy of reported inflation last month, particularly the avalanche of hidden costs that have been borne by manufacturers, wholesalers, and retail chains, but because he mentioned, "an 18 year old living in their parent's basement eating Ramen noodles". Which was funny. 

Tue, 01/25/2011 - 15:10 | 903504 minus dog
minus dog's picture

A lot of people aren't "laboring" anymore, maybe we need to drop the "L" out of BLS and just shorten it to BS.

I'm watching prices climb on a monthly basis, I don't give a flying fuck what the BLS says is (or is not) happening.

Tue, 01/25/2011 - 16:07 | 903728 Gimp
Gimp's picture

Lets start a ZH monthly price watch on ten items to see price movement month to month through 2011. I suggest the following items:

1. Gallon of Milk

2. One loaf of Bread

3. 64 oz  (now 59oz) of OJ - Tropicana

4. Dozen Eggs

5. 5lb Bag of Idaho Baking Potatoes

6. One Gallon of Regular Gas

7. One Bottle of Pepto Bismol

8. One bag of Whole Flour

9. Can of Baked Beans - Bushes

10. 12 pk of Charmin TP

Tue, 01/25/2011 - 16:52 | 903929 tarsubil
tarsubil's picture

Loaf of bread, bottle of Pepto, bag of flour, can of beans, Charmin are no good as they can mess with the weight.

A gallon of milk is good but I bet the farmers will soon be adding water so they themselves don't starve.

Tue, 01/25/2011 - 17:31 | 904062 Lord Koos
Lord Koos's picture

How about adding the price of gas and a pair of Levis?

Tue, 01/25/2011 - 16:17 | 903779 InconvenientCou...
InconvenientCounterParty's picture

Manipulating the yeild on TIPS and COLA's alone are probably worth something north of $10B/yr.

motive, opportunity... you get the idea.

 

 

 

 

Tue, 01/25/2011 - 21:14 | 904586 i.knoknot
i.knoknot's picture

+

add to that the bogus paper GLD/SLV/... that sponge up real PM demand with paper lies, and it looks they've got it all covered...

until they don't.

Tue, 01/25/2011 - 16:31 | 903846 AaronKrowne
AaronKrowne's picture

Martenson is dead on.  I noticed this a while ago when I was poking into the BLS's inflation weightings.   I was wondering when anyone else would catch on.

It's a complete joke; my current health insurance (a low-cost, high-deductible plan, bought independently on the open market) has gone up in cost about 22% a year in the 3 years since I first purchased it.  And I've had no major medical incidents.

At the moment, it amounts to something like 4.5% of my pay, for which I am still lucky.

Prior to that, being stuck with a group plan at a large employer, I calculated that a total of 8% of my take-home pay was going to health insurance (and I was paying the minimum possible).   That situation reflects the most common scenario, where people are locked in to an expensive (overpriced) plan with their employer.   People with families and challenging medical histories have it even worse. 

The BLS should have to explain why its weighting of health insurance is so far from the total GDP expenditure on health care, or at least, what the typical middle class family spends on health insurance relative to their total income.

Tue, 01/25/2011 - 17:26 | 904043 JonNadler
Tue, 01/25/2011 - 19:23 | 904345 Josephine29
Josephine29's picture

Thanks Chris for an informative article. I have not seen this subject challenged since I saw an article by an English economist Shaun Richards on this subject back last summer. He argued that the European System which the UK also uses or the Harmonised Index of Consumer Prices measures inflation more accurately in the US than the official CPI. It certainly has had higher readings

The irony is that he feels that HICP is a poor measure too, simply less poor than the one in use now. For those interested it can be found on http://t.co/DDcquOE

Fri, 01/28/2011 - 06:38 | 912323 Youri Carma
Youri Carma's picture

Don’t Be Fooled, Inflation Is Already Here http://forum.prisonplanet.com/index.php?topic=194775.0

Do NOT follow this link or you will be banned from the site!