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On those Inflation Numbers
Inflation is a thorny topic for those who try to write about it.
Everyone has a different gripe, and they are all right. The numbers
bandied around from CPI to Core and non-core and whether crazy things
like hedontics (that IPad thing) should be even considered in the
equation make mush of any discussion. No one really trusts the numbers.
Not even Fed officials. (TV anchors do, however)
The next issue is that everyone lies about the numbers. From Bernanke
to, well, me. The numbers are easily skewed to make whatever case you
want.
I can’t help that the measuring sticks that we use are flawed. To my
knowledge there is no better set of numbers to use. So I will use COLA
as a benchmark to make a few points. A look at America’s long-term track
record on inflation:
The most notable part of this graph is the tremendous blowup that we had
with inflation in 2008-2009. We raced higher, then it collapsed. A
closer look at monthly changes in COLA since 2007.
Some observations about this very unusual period in history.
-From July of 2008 through February 2011 inflation rose by just ½ of one
percent (about ¼% per annum). If you want QE to go on for another few
years you will point to this as the evidence that inflation is
“worrisomely” low. This is what Bernanke is looking at. There is no
inflation at all over this time period.
-I’m not sure of the economic relevance, but I do think it is worth
noting that as of February 2011 inflation has fully recovered from the
08-09 recession. We will be making new all time highs for the next six
months at least.
-The peak to trough drop in inflation came from July to December of
2008. What we call inflation fell by a real 5% (11% annual). You wonder
why guys like Bernanke and Paulson were freaking out? This is the number
that scared them the most. In the fourth quarter of 2008 inflation fell
at an annual rate of 19%. That’s pant-shitting time. This is the panic that brought us TARP and QE and all that other stuff they did back then.
-From the trough the COLA measure of inflation has risen from 204.8 to
217.4 today. Over this 26 month period we have seen a real rise of 5.8%.
(2.3% annual). This number is quite a bit hotter than Bernanke’s test
for inflation of, “a little under 2% per annum”.
-In the past nine months CPI-W has risen by an annual 2.2%.
-In the past six months CPI-W has risen by an annual 2.9%.
In the past two months the CPI-W has risen by an annual 5.1%
It is these last three data points that has put inflation back on the
front page. Not only are we experiencing measurable inflation on a daily
basis, we are also seeing the change in pricing accelerate on a very
rapid basis.
-A point not from the chart. The CPI-W will make significant gains for
April, May and June. That inflation is now baked in the cake. Bernanke knows this quite well.
This chart shows historical annual COLA increases. This data smoothes out all of those monthly gyrations.
There are only two years where this measure of inflation exceeds 5%. We
know what happened in 2008; that was ugly. In 1991 we had a mild
recession (7.8% unemployment, peak to trough GDP –1.4%, duration 9
months). This recession was brought on by a blowup in the oil market. We
were headed off to Gulf War #1.
In 2001 we had another mild recession (8 months). That one was caused by
the Dot.com blow out. CPI-W was on the high side at 3.5% that year. But
the stock market was racing at 20% per annum. Easy money caused that
speculative boom. Everyone paid a price.
A synopsis:
After a tremendous hiccup inflation is today at an all time high. CPI-W
has grown rapidly over the past half year. It is growing very rapidly
(dangerously?) so far in 2011. It is near certain that the rate of
inflation over the next few months will be significantly above trend.
Historically, periods of rapid (5+%) inflation are met with periods of
recession. The related conditions that bring economic crisis are
excessive monetary policy, war and or an energy shock.
All four of these conditions are met today. In other words, we are
asking for trouble. How Mr. Bernanke can avoid seeing how all these
stars are lining up is a mystery to me.
Note:
My oil contract ran out. I got a 1,000 gallons spot delivery at
$4.40/gal. The spot price a year ago? $3.17. That comes to a tidy 36%
increase. In that corner of my expenses I’m experiencing hyperinflation.
Bernanke can exclude food and energy from his calculations at his and
our collective peril.
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You know they can price goods at what we canall agree is hyperinflation, but that does not mean the public has the funds to pay for them. In that event hyperinflation lasts a week two at tops. Then what you have is a deflationary depression. Price do not have to change by the hour, nor do they have to flat out add zeroes every week, they just have to be beyond the publics ability to cope with them, anecdotal example from today, January one of this year I could fill my car with gas for 45 bucks, today it was over 60, when it was filled I drove to the market for what meat I could find on sale for dinner, and I was appalled to see how the prices had risen just this week. An avocado that was 50 cents 6 weeks ago was $2.50 this week, a cheaper cut of beef roast not significantly bigger than my fists was nearly 20 bucks, and Hillshire Farms polska kielbasa/smoked sausage which were 2 (16 oz each) for 5 dollars for years were now on sale for $4 for a single 14 ounce sausage, they have the nerve to say that a 14 ounce suasage is regularly $4.99. Last time I bought one a month ago I got it free because even the store failed to notice that the size had dropped from a pound to 14 ounces, thus their sale circular was wrong.
To my point of view this is hyper inflation, annualized the grocery and fuel price increases in the last month or quarter would more than double most food, and in the past some prices rise while others fall, but in this bout nothing is going down, I can't even think of anything that has stayed the same price, all has gone up. I think we can all agree that 100%+ inflation is hyper inflation.
Like I hold though, it will only be for so long before those that ask these prices fail to get them and cease doing business. Also, consumers who are forced to pay more for necessities yet have no more income to spend on them simply must take the higher costs out of other things, cable for example, get rid of the ON DEMAND, get rid of the High Def, get rid of the 10 meg internet service all in favor of basic services. Quit taking the daily paper, we all have our own definition of what is and is not a necessity to us, I for example will not use cheap toilet paper nor quit smoking no matter the price of anything. I will not drink shitty wine from a box (not that I drink it that often but when I do I drink medium level vintages) nor will I buy cheap bread I can't stand. I use premium gas in my car because that is what the manufacturer demands, two extra bucks a tank is not that much extra, I will just cut out the bottled water or Starbucks. Go to the library rather than buy a book I want. Stop buying lilies for the dining table, there are always things we can cut back on, but that means death for those in business that rely upon our consumerism. Collectively it means a lot of people out of work, and if pricing does not respond to demand destruction then eventually it will mean revolution.
Ah, Bruce of the 1% is back. Bruce, your postings here seem out of place with the common folks like us. Your world of ignorant worker bees held down by lower wages and lack of education really doesn't fit here does it? Why you 1%er's would want to live in a dirty, ignorant low wage world I am confused by. When I read some of the literature (I guess I shouldn't disclose I can read for fear of the Bruce's breaking the door down) of past empires keeping the workers poor, uneducated, dirty helped the 1%er's hold on to power until they met their end in the public square of the level playing field. Pol Pot's purge of the educated, Mao's banishments, Stalin's death camps of the learned. Hitlers oppression forced party affiliation. Ah and the law to ban reading, writing and math for African slaves. Bruce when you fire all the teachers and kill all the research in the country where will you live? Will you move on to plunder another country of middle class assets? France per chance? Would the Brit's welcome your austerity of public service? I wonder is there anything that Bruce believes government should do? Ah, I remember WAR, war materials and finally something for the slaves to do. Some how your vision of the future doesn't appeal to me Bruce. I have looked at Argentina considering they have already tried and failed at your vision and now have bottomed out (with exceptions). I think I will take what education/training/research cash I have and move on before your dream comes true.
by the way I developed a new method of radiation detection for the people of Japan, they seem to need it more now than ever. Your help in getting this video to physics students ZHer's know would be of great help.
http://www.youtube.com/watch?v=G6Q7VfWdgEg
Thanks,
P.S. Bruce, how did you get where you are? Did you use the public sector, schools, roads, property rights, contract law? Hum, just thinking...................
We all have to rant once in awhile. I do it myself. So I hope you feel better. My suggestion? Take a deep breath, relax for a bit. This too will pass for you.
Do us all a favor. Read some of my articles. Your connecting me to Pol Pot, Stalin, death camps, Hitler, Mao is a over the top. Want to make make comments? Make them reasonable.
bk
Bruce, I don't think they would have let you be that high on the court. I was not comparing you I was comparing your vision of the perfect world. Your hate of workers. I have or rather used to read your work as often as you wrote. I have since your worker hate topics, deleted your link and didn't even read this post. This rant was for you and all like you who think we will lay down and take it. Don't worry, I will never read you or write within your space again. When you revealed what you really think of us, that was enough for me. Just wanted to let you know I know that you know that I know:)
Wow, you really do think that highly of yourself, Pol Pot ha! You wish!
There is a tremendous amount of slop in the word "inflation", so it is no wonder that there is further slop in how it is measured.
People talk about a price increase caused by true scarcity as "inflation".
People talk about a price increase caused by currency dilution as "inflation".
Muddying the waters even further is the tendency of commodities speculators to warp values via pure speculation that has little to do with real prices, such as that caused by excess liquidity in the hands of megabanks prop desks due to QE.
In a sane world, solvent banks would center on their loan business, loaning money to businesses whose applications revealed they were the best risk to expand and prosper in a growing industry and pay back the loan with interest. While doing so, they would increase supply of goods, which would, in turn, combat "inflation" caused by scarcity.
The money would be lent so that real goods could be produced, adding to national wealth.
Instead we are getting money created out of thin air by the Fed which ends up having no effect on production of real things, which does nothing to combat scarcity, and which also causes the double-whammy of currency dilution.
So no matter how you measure it, prices should be expected to rise at greater than average levels.
why even quote gov statistics on economy? its all bull shit isnt there a more legit source?
should be everyones duty to not enenb talk gov bullshit lies and not ever quote them
slightly off topic ...please forgive ... but Kitco has ZERO Silver Eagles for sale, they do have 100 oz bars but not one Eagle...and this is while silver is at post Hunt Bros. all time highs. I suspect a lot of 'the little people' are getting wise. I am well aware short term inventory shortages occur with some regularity but Eagles when folks are definitely not 'buying the dip'?
in order for the status quo to be changed in to a new paradigm the old must be destroyed. this destruction it being done economically. the new paradigm will hopefully be better for most of us (at least for a few years). hold on, this ride is just getting started and it may prove to be even more of a thrill ride than most of us know can even exist here. our collective cognitive dissonance will be shattered.
ZIRP can't help get credit moving again when incomes and household wealth are gone, when average credit scores are 100 or more points lower than they were 3 years ago. Most people will not borrow, and those that do will find banks will not lend. ZIRP is a fiction between the Fed and primary dealers and market makers to keep equities high and the federal government funded. And the yield on investment in a ZIRP world is negative, at least in real terms, I would really like to meet an individual investor who has his nesteggs in debt investments now, because I am pretty sure he will like the deal I have to offer on this spanking new bridge from SF to Oakland.
What this analysis fails to discuss is "credit", and more specifically the lending terms (underwriting) to get that credit.
Some very smart people state that much of the inflation the last X years was due to 'leverage', and at the manic peak of 2005-2006, leverage that was the result of lending with no underwriting whatsoever. (NINJA, "covenant lite", etc)
Now that 15 years of fraudulent underwriting has been exposed to all market participants, there's no way to put the genie back in the bottle. Joe & Sally Average can't get a liar-loan mortgage for 6X income now like they could in 2006, and TPTB know this. The price for anything, generally bought with credit, will fall to meet the new loan underwriting that market participants demand. Mountain Ranges of old paper loans are worthless. Ben thinks ZIRP can mitigate this. I doubt it.
Everyone has their own rate of inflation according to their lifestyle and spending habits,however all one needs to remember is that a dollar at the inception of the Fed is now almost one hundred years later worth only 3 cents.Work that rate out someone.
More importantly,a dollar today will take nothing like a hundred years to lose 97% of its value with the Bernank in the chair,maybe twenty or thirty years tops,long enough for most people alive now to remember.
Funny. Considering the incredible increase in the amount of goods put into circulation between 1910 and 2010, it is very unlikely that a dollar could buy the same in 1910 than in 2010. Yet, many use that sophistry to come to the conclusion that the USD is devalued.
TPTB can make the numbers whatever they want them to be. Move along and do something useful and fun for a change.
Barnanke works for Wall Street banksters. The banks are still buried with bad loans from RE. The reason they are reflating is to increase input costs for housing. If lumber, cement, copper, etc, all roar higher, then Case Schiller will begin to reverse. Once existing housing inventory is gone, then replacement cost for new homes will jam Case Schiller through the roof and it will be Game On! for residential RE and then the loan portfolios held by Benny's bosses will be rescued. Won't help the unemployed renters but then again who gives a fuck about them? This is all about Wall Street banks and balance sheets, not to mention the Fed's balance sheet which is a nightmare....Reflate and prosper.
Long live the United States of Zimbabwe.
By firing up the printing press to warp speed, cranking out billions in free money to the big banks, Chairman Moonbeam Bernanke is not only causing oil and other commodity prices to rocket to the moon, but he’s also causing the stock market to break loose from all things that are real and growth producing about our economy, where it’s now living in its own little bubble world, just one needle prick away from going pop!
Ground Control to Major Tom
Your circuit’s dead, there’s something wrong
Can you hear me, Major Tom?
Can you hear me, Major Tom?
Can you hear me, Major Tom?
Can you….
http://www.youtube.com/watch?v=J9fkYQ6pPeU&feature=related
"He who panics first, panics best"
--Hugh Hendry
With the continued surge in Gold and Silver (6% alone this week) I have a feeling that Bernankes words that "Inflation is just transitory and temporary" which he announced recently, will come back to haunt him as much as his genius insight in 2007 when he said "Subprime is contained"!
Bruce, that's just disingenious.
For all the newbies try www.shadowstats.com Note: The alternate data graphs are accessible without a subscription.
Even Shadowstats numbers don't reflect the reality of price increases because all he is doing is continuing to calculate prices by the old methodology before they started using all the gimicks they now use, but that old government methodology did not reflect the actual increases either. I mean it is a better indication of what things cost and how rapidly prices are rising, but I know that when we had the huge stagflation of the 1970's my experience of it was that the government was underreporting the data. It could be that because I was so poor at the time, first (only) enlistment in the military that every cent I got was spent of rent and gas pretty much, I could buy smokes for $1.12 a carton at the exchange, and I could eat pretty cheap in the chow hall even if it was horrific food. I do remember car prices skyrocketing then.
Okay. Good point. I will look at this.
I chose "government" numbers. COLA is an important number. It drives SS and payouts for a bunch of other programs.
I know this number is "flawed". I said so. I think even this look at inflation supports what I was trying to say. Inflation, (CPI or Shadowstats) went nuts over the last three years. We have gone through a very unusual period.
If I had used shadow stats I would have taken flack from someone who would say the shadowstat numbers are "cooked".
They are all "cooked' in my opinion.
Funny, that was my first thought as well!
Although, I must admit that I believe that ShadowStats does somewhat overstate the real rate of inflation --- but not nearly as much as the Bastards of Lying Statistics understates it.
I believe ShadowStats states inflation correctly. The average annual inflation has been 7% for the last 40 years, but since around 1980 the official numbers were increasingly rigged. Put it differently nominal prices doubled each decade since 1970.
Several crosschecks I did against prices my parents paid in the late 60s confirm that to be pretty accurate.
'Bag o' chips and a pop' price increases back that up malek.
1979 25c each
1990 50c each
2000 buck each
2010 a buck and change each, but with 'shrinkage'
Pretty accurate all right. Spot on.
1970: hamburger fries and a coke at McD's 19 cents, now a quarter pounder no cheese, fries and soda nearly six bucks. I distinctly remember when a bottle of pop went from a nickle to a dime, as a child that really impacted me because nickles were hard enough to come by let alone a dime. I also remember when pay phones went to a dime, then to 15 cents, and a quarter, now people say what is a pay phone? I remember the week Nixon imposed wage and price controls, hamburger had just jumped in one leap from 19 cents a pound to 29 cents, my mother was a waitress in Lincoln Nebraska, she actually cried at the prices, there was no minimum wage for food servers, they worked for tips which are notoriously bad in such hard times. Tipping meant 10% then, if service food and atmosphere were all good, but how did they leave a 10% tip on a 10 cent cup of coffee? Dinner in the best steakhouse in town was about 6 dollars. I am in my fifties (52) people, I am not some 90 year old relic of the depression, if the CPI had gone up by the cumulative totals the government has published general prices would be about half what they are now, that is how under reported they have been.
Well, you just make my point --- as much as I loathe even the possibility of sounding like I am even slightly supporting the lies and propaganda of the financial establishment, I do not think it is realistic to say that the average rate of depreciation of the US dollar has been 7% per annum for the last 40 years; that would imply that prices, and the overall cost of living, have increased by a factor of 16 since 1970, when NO data that I can see supports such a conclusion.
I would say that perhaps the average rate of inflation in the last 30 years has been closer to 4 or 5%, which would mean that overall prices have increased by a factor of roughly X 4 since 1980, which closely corresponds to what I have observed in terms of overall price increases since that year (the CPI would claim only X ~2.5). For the decade of the 1970s, though, the average rate was probably closer to around 11%, which since 1970 would give a general price increase factor of X 10, which again sounds about right to me (the corresponding CPI factor would only be about X 6).
Based on my own observations and calculations, I estimate that the REAL rate of "inflation" (currency depreciation) in US dollar terms can be found by averaging the lowball CPI figures put out by the BLS, and the highside figures put out by ShadowStats.
According to ShadowStats website, the increase factor since Jan 1970 would be 5.85x (BLS) or 19.9 (SGS) up to Feb 2011.
You should really reflect on that a little more. If you cannot believe the CPI but somehow also doubt the SGS, I hope you don't just take an average of two -in your opinion- questionable numbers ;-) Which long term observations support your 4-5% estimated inflation rate?
In the late sixties my father with his good paying but not high-income engineer salary supported non-working wife and 2 kids, had 2 cars, and paid the mortgage rates on a new single-family house on a large plot in the commuter belt of a large US city, but was otherwise debt-free and never got into a financial plight. And me and my sister might have still been able to pay for university ourselves with summer vacation jobs when we reached that age. (We didn't live in the US anymore at the time.)
Nowadays my job position is roughly equal to my father's back then, and even if I had a wife with a good-paid job we couldn't even dream of coming close to that. And don't get me started on today's higher education costs!
Malek, you raise an excellent point, that it is one thing to talk about the general rise in prices over the years, but quite another to consider the corresponding changes in our standards of living as well. While I was strictly focusing on the rise in the general price level, i.e., "inflation", it is also true that quite aside from that rise, the American standard of living is falling, and has been falling for many years, even taking inflation into account. There are probably numerous factors that have fed into this phenomenon, the rising cost of living being one of them, but not by any means the only one --- relative wage stagnation, outsourcing of jobs and entire industries overseas, rising regulation and taxation, the rapidly rising cost of services which are heavily subsidized or socialized such as education and so-called "health" care, etc.
As for my estimation of the average rate of inflation being roughly midway between the BLS stats and Shadowstats figures, that is not just some arbitrary figure I threw out there, but one at which I carefully arrived. I base it on numerous costs and price increases which I and others of my similar situation (middle middle-class) have experienced over the past 30 years. But in particular, I again think it is an exaggeration to suggest that overall prices have increased twenty times since 1970 --- while I was rather young in that year, I see no objective data to support that estimation. Nor, however, do I put any credence in the BLS's insultingly low estimate of six times. I stand by my ten times figure for the last 40 years.
Austrian Economist's True Money Supply data kept since 1959 (TMS2) shows that the US money supply expands at an average rate of 6.2% per year compounded. Note that the stock that the FED member banks hold yields 6% per year. Since the FED produces nothing it only makes sense that the 6% dividend can only be paid by expanding the money supply. The 7% noted rate of inflation is entirely consistant with the 6.2% figure.
No Social Security COLA for the past two years.
That pretty much tells you that the old are being sacrificed to ape the young.
COLA only kicks in when there is an increase in the index on a year over year basis. That big bump in the graph shows that we have just headed into "positive' territory. So COLA increase wil resume.
It's how they do this.
As you can read in my post COLA's are not awarded on a Y/Y basis any longer, only based on third quarter price rises (the quarter where prices are usually dropping for seasonal reasons, DUH why do you think they picked Q3?) and even then the increase is limited to the rate of increase less the higest increase given since they changed the law, meaning Q3 has to have higher price increases than Q3 of 2008 when they gave 5.8 percent.
Ben claims the inflation in commodities is due to increased global demand, then he says don't worry about it - it's only transitory.. Seems like bs to me.
As a 100% disabled vet whose pay and COLA's are now linked to the social security rate I am acutely aware of not only the gross underreporting of CPI but the outright lies and frauds they use to get away with it, though tens of millions who are being lied to know damned well prices are increasing as fast as they ever have in living memory, faster than in the Carter years. You can only stiff them and lie to them so long before it becomes a major political issue.
By the way, there is no "t" in hedonics, sorry for nitpicking but we must maintain professionalism to be credible.
So many tricks, mirrors and smoke they have aside from hedonic adjustments, geometric chain weighting, substitution for products and services rising faster than they want to show, easily manipulated surveys for the largest component (42% of the CPI) which is owners equivalent rents, which asks house owners how much they think they would have to pay in rent to have the same level of housing if they were to have to rent rather than own. I doubt if 1 in 25 homeowners has a realistic idea of the rental market. Even if they did the survey itself is so easily manipulated the BLS can use losses in the results to offset gains elsewhere in the CPI, and I know from personal experience that while homeownership has decreased in cost from the peak those millions now gone from owned houses are putting a heavy squeeze on the rental market.
To make matter worse they changed the period in which CPI is measured, instead of determining the Y/Y increase and adjusting the COLA accordingly they now only measure the prices in the third quarter, they take a snapshot of prices July first and then again October 1 and calculate the COLA from that data, and that quarter is notorious for price decreases because gas prices go up in May for the summer then come down as the summer blend has to be cleared for the refining of winter blends in the fall. It is also harvest time when fresh food comes on line and those prices drop. It is also a time when back to school sales and seasonal clearances happen, want a cheap lawn mower? Buy one in September.
On top of all that as if this was not enough to put everyone getting a fixed income on food stamps and HUD they now will only give a COLA in the amount of the difference between the new price increase and the highest price increase since they changed the law, that is, if we have a 3rd quarter (annualized) inflation of 6% do they give a 6% COLA? NO! They give you the difference between the highest (5.8% in 2008) and the 6% for a whopping 0.2% raise. This in essence means that once we had one decent raise years ago we will never get another even though their smoke and mirrors have neutralized recognition of almost all structural increases over time.
I know many of you pay taxes and some think entitlements should not even exist anyway, if they have to be paid we can at least make them small and unfair. To that I say just you wait till it is your turn. And I also do not like or appreciate being lumped in with welfare recipients who get entitlements for what amounts to using a functional womb, everywhere I go I see stickers on cars saying THANK A VET, SUPPORT OUR TROOPS, and a lot of other crap about how much you all appreciate your veterans, until they have to actually be paid for their sacrifices. My VA compensation is not a lazy man's something for nothing, it is a debt the nation owes above all other bonds it has floated. The law says you cannot lower my compensation for a damned good reason, but that is in nominal dollar terms, you can and are lowering my compensation in real terms of purchasing power and to that I am telling you I will not take it much longer.
The shit you need to buy every week costs more, as every week the dollar is worth less.
This is good only for central bankers, cotton candy stock sellers, and PM's.
The average individual and household are getting bent over ONCE AGAIN.
Bernank isn't stupid. He knows if the private Federal no-Reserve Bank doesn't buy those Treasuries, no one else will, unless the rates are very much higher. He's implementing a political solution, not an economic one.
If the author is correct about inflation, the takeaway is that QE3 will be postponed temporarily, liquidity dries up, all stocks and commodities will dip in the meantime, the dollar will rebound slightly, until such time the Fed feels necessary to save the markets again, and the next leg of the teeter totter game begins. This will continue until it cannot continue anymore, because at some point, Ben has to decide whether to save either the dollar or the market, only one can be spared, not both.
Someone has to drain the pond before more radioactive dollars can be emitted to reduce the pressure building within the breached Fed reactor core.
"I lie, therefore I am."
Wall Street Philosophy
kumquatsunite, I find your comments interesting about Chinese slaves and their wealthy masters. We have a similar situation in the US, but the slaves (the few who are employed) live high quality lives.
The problem I have with your comments are about why jobs were shipped to China and other developing nations. With manufacturing that requires a high proportion of labor (like clothes), the low-cost labor countries are going to run over the US in a wage advantage. In most high-tech manufacturing though, labor consists of 10% or less of input cost to the final product. For example, semiconductor manufacturing only requires 3% of production costs coming from labor. The rest is equipment investment. These high-tech jobs were shipped overseas because of tax shelters and lax regulations over seas. US multinationals do not pay on profits made overseas and there are no environmental or worker regulations to deal with. OUR US GOVERNMENT SOLD AMERICAN WOKERS DOWN THE DRAIN!
Evidences of that? The evidences have shown so far that the US government has been following the path of least resistance, that is according to the will of the US People.
US citizens (workers including) have long celebrated the suppression of demand in some places so exports could take in, allowing a sink of consumption elsewhere.
The consequence of suppression of demand is that mechanically the labour in these places grow cheaper. Taxes, regulation and all are only secondary sides of the issue.
Outsourcing to China is nothing different than what happened in the US and how the US was shaped into peer societies, people living with their peers, same revenues bracket and all.
What is happening in the US is the result of the US popular will.
The Chinese government has done the same, since they now outsource manufacturing to Vietnam and others. Low wages and a low regulatory burden have a way of attracting jobs and capital investment. Tax domiciling is more complex since it can be changed faster and is not necessarily the same as the domicile of production, but a low tax burden does have a tendency to attract capital income and wealth. The problem is that the US is now in the position of having to increase/attract both jobs and income and lacks the tools and the will to do so.
Nice Article!
I was struck by the first chart and its steady incline. I am forever amazed at how the Central Planners can have access to all manner of data and overlook the obvious consequences of their actions. This chart alone would be evidence enough to convict the FED planners in any rational court of competent jurisdiction.
DaddyO
enjoy the puppet show, its only a matter of time before their benevolence becomes evident.
ran across inflation number for Iran the other day... 12.6% (ouch)
sorry no link to the story but it was an Iranian publication
Inflation is an interesting concept, but what does it really mean?
We speak of gas and food, but not much about labor. My theory is that beginning with the "Great Society" of welfare begun by President Johnson, escalated and bricked up by President Clinton who hid welfare in his "welfare-to-work" program that ensconced welfare inside of a tidy little "you work 20 hours a week and we can pretend that all these welfare payments (housing subsidies, daycare payments, food stamps, medicaid, disability payments) aren't 'welfare'".
In order to combat the horrendous taxes (called "fees", "licenses", "inspections", whatever!), business looked for a way out and found it by beginning to ship overseas for low-cost labor. Thus, while it is common to trash American companies for going overseas, they were...in fact...simply responding to the ever growing tax burden put upon them by the government and responding in a methodical way.
However, now we are seeing that China has decided, (as well other foreign countries with up-to-now low labor costs, that the time has come to actually start paying their people a decent wage. And so now we are seeing the effects of Labor Costs actually starting to work their way into our once-upon-a-time-dirt-cheap costs.
I knew something was wrong when realizing that the costs of many items were the same Or Less as when my mom and I shopped at K-Mart back in my teenage days. How could this be? Well, the reality is that it can't. Slave labor only lasts until the slaves rebel, and that is what we are seeing in China. Slaves ferment their resentment, their hatred, their simmering longing to be the master, and not the slave.
One of the thoughts that rattles around the brain cells (when they are firing!) is the idea that all slaves eventually revolt. Imagine being one of the Chinese on the line making pretty, white, well-dressed dolls for some child in America. Or going back to visit your parents in the village after making shiny new stainless steel pots and pans for Americans while your parents use a banged up, beaten up wok.
I just purchased a beautiful, new, stainless steel tea whistling tea kettle. $130.00. Great brand name, wonderful kettle, will last a lifetime. Made in China. How they must hate us as they send us this wonderful stuff.
When labor costs start kicking in, that is the real inflation.
"I just purchased a beautiful, new, stainless steel tea whistling tea kettle. $130.00. Great brand name, wonderful kettle, will last a lifetime. Made in China"
Stainless steel skim coated onto pot metal.
You think this will last a life time ? I guess you won't be around long.
China learned very quickly that to meet WallyMarts dirt cheap pricing you had to cheat on quality. And cheating at standards is what the Chinese excel at.
Arithmetically falling prices, with exponentially falling product standards means uncounted hyperbolic inflation. You must continually replace the junk you buy from China.
And that is why you have collapsing purchasing power.
Skim coating pot metal with stainless steel? I would be surprised if such a thing -if it can be done at all- would not actually increase overall manufacturing costs. Or are you mixing that up with chrome-plating?
Um, Wal-Mart doesn't sell $130 tea kettles.
Or anything close.
not yet, just give it some time. only 3-4 years back I paid about 1/2 the current price for the same coffee maker. thats only a 100% price increase.
Why pay $130 for a steel kettle?
Buy one made out of Rearden Metal. Cheaper, and will outlast steel.