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Say Hello to Inflation, Inflation is Dead
Say Hello to Inflation, Inflation is Dead
(Featured in Market Shadows Newsletter, Fables and Fairy Tales. Also in the newsletter: A classic fable applied to investing, the selling of 4 puts, an indicator turning bullish, data on bond buying/selling, and more.)
Quantitative easing (QE or “money printing”) will continue despite Bernanke’s rhetoric about cutting back. (See Don’t Fear the Taper). Funding trillion dollar annual deficits requires monetization of debt. America is almost $17 trillion in debt. Interest rates rising just a few ticks closer to their long-term, normalized levels, would be an insurmountable strain on future budgets.
Admitting the true rate of inflation would trigger Cost of Living Adjustment (COLA) raises for government workers, pensioners and social security recipients. Private sector unionized labor and nonfederal government employees would likely demand raises too. Bond buyers would insist on higher coupon rates.
Our leaders have sacrificed integrity over fixing the underlying problems. Paul Price discusses the situation in Inflation Will Never Go Up Again. In his view, there is no plausible exit strategy from QE without risking societal breakdown as lifelong promises get broken (pensions, salary adjustments and social security payments). Civil uprisings have already occurred in Greece, Iceland and Cyprus. The masses are rebelling in Egypt today. The U.S. has avoided riots because QE is holding interest rates artificially low. The Bureau of Labor Statistics’ (BLS) manipulation of Consumer Price Index (CPI) allows the government to pretend inflation is not serious. When the public realizes the true extent of inflation, bond buyers will likely demand much higher coupon rates pushing up the government's cost of debt service dramatically.
Inflation Will Never Go Up Again
By Paul Price
Really? My health insurance premiums have skyrocketed. My kids’ pre-college and university tuitions have been ramping up. The cost of filling my gas tank has soared. Shiny new menus at restaurants mean higher prices - cash-strapped operators do not print them just to offer exciting new entrees.
Obamacare's implementation will make matters worse. Franchisees won't be able to absorb the added cost of healthcare coverage, or the $2,000 per worker penalty. This expense will be passed along as higher prices.
Despite these anecdotal experiences and predictions, the government’s Bureau of Labor Statistics (BLS) tells us each month that the Consumer Price Index (CPI) is barely above neutral year-over-year. It all comes down to how ‘inflation’ gets defined.
People generally think of annual inflation as the cost of a basket of goods and services today versus the cost of the identical basket one year earlier. While that makes sense, it is NOT what the BLS measures and reports.
If you want the details of the BLS report, read the fine print (below). The CPI-U is said to represent the index for all urban consumers.
Core CPI specifically excludes food and energy costs, reflecting reality only for people who don't move, eat or buy any products requiring transportation.
Rapidly rising income, property and sales taxes are not included in any of the BLS inflation numbers. Taxes add to the cost of living.
I traveled to Iceland last September. Part of that country’s post-2008 crisis management was the imposition of a 25.5% VAT (value added tax) on almost every retail purchase. Paying 25.5% in sales tax means each Krona can buy only 74.5% of the currency’s face value in real merchandise or services. Money unspent does not go towards paying VAT. But never spending money is the same as not having it.
Iceland imposed currency controls due to its banking industry failure. Citizens cannot move their wealth outside of the country; they cannot buy non-Kronur denominated securities without prior government approval. In practice, Icelanders will either pay the prohibitive 25.5% tax or forfeit spending their already-taxed earnings.
The same plan, with slightly lower rates, is in effect all over the Eurozone. When VAT rates move higher, inflation - defined as the cost of living - increases. (Imposing a national sales tax in the U.S. is a terrible idea. Taking money away from those who need it or could use it productively, and giving it to government, will allow politicians to do more damage. Deficits and spending won't drop.)
As an aside, ‘temporary’ taxes are rarely temporary. The June 29, 2013, Philadelphia Inquirer recounted the story of the Johnstown Flood Relief tax of 1936. A 10% surcharge on all alcoholic products was levied to help the townspeople. 76 years later the tax has risen to 18% and is built into all Pennsylvania liquor sales. None of it is earmarked for Johnstown. The hidden tax is part of the final retail price that then becomes subject to PA’s state level 6% sales tax. After compounding both taxes, the final cost is 19.08% at the register. The price of booze is not included in official inflation lists even though government policies may be driving us to drink.
Excluding food, energy and taxes from core CPI allows the BLS to understate increases in the true cost of living. After high inflation years in the late 1970s, the government changed how it calculated CPI. This happened again in 1990. Each time, the BLS manipulated the measurement techniques to downplay the extent of cost increases. This lessened the government’s need to increase Cost of Living Adjustment (COLA) applied to employees and retirees.
The excellent ShadowStats website provides monthly updates on what CPI would read if the rules were still the 1980 rules. The difference is startling.
Some BLS tricks are even more devious.
The BLS uses other tricks to lower reported inflation rates. The ‘substitution principle’ says that when the price of a particular item, e.g. rib-eye steak, rises, consumers will switch to lower-priced alternatives like ground beef. Under that scenario a 20% rise in rib-eye steak prices disappears completely if it can be offset with ground beef costing 20% less. If Lexus or Porsche MSRP’s go up 30%, it doesn't matter because the consumer can buy a Kia or Hyundai instead. No inflation adjustment required.
Our leaders also call improvements in quality with unchanged pricing ‘deflationary’. The first iPads were crude by today’s standards but cost $600. The newest iPad with Retina Display still costs $600 but packs more power and features. The BLS counts that as a drop in price even though the price is the same.
Until consumers are walking to work and eating cat food, the substitution principle allows the BLS to call CPI anything it wants.
A real-world consumer poll showed very large increases in the out-of-pocket cost of living over the period from Q1 2001 through Q1 2013. The official change in CPI is almost invisible over that same period.
Anyone who pays their electric, tuition or grocery bills, or funds their own health insurance plan, is painfully aware that the CPI and CPI-U numbers do not reflect reality.
The cost of living has been rising at a fast pace. Inflation, as measured by the CPI, will never go up significantly unless politicians abandon their deceptive practices. Unfortunately, Washington D.C. has a strong interest in keeping the public uninformed.
Read the latest Market Shadows Newsletter, Fables and Fairy Tales (7-3-13).
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My fav. frozen burritos went from $3.89 to $4.18 in less than a month, Nahw, no inflation with food either.
It's not just cost. Take a look at the incredible shrinking everything. My toothpaste decreased an ounce. My paper towels shrank about a third. And on and on and on.
The fuckers at the fed and BLS are liars, and they know it.
There is no inflation unless there is WAGE inflation. Then (and ONLY then) will you have the fed fuckers panicking.
So don't be expecting too many COLA raises in the future.
The AUD has been dropping (must be a China story because they've held rates high for a long time). They believe in/understand inflation there and are planning for it.
Christmas Candy Stockpiled in July as Aussie Slump Looms"With the Australian dollar down 12 percent in its longest losing streak since the 2008 financial crisis, he’s stocking his food store early in anticipation of a further fall."
"The weakening Aussie, which on July 3 fell below 91 U.S. cents for the first time since 2010, will push up import costs about five percent even if it ends the year at 96 U.S. cents, according to Bank of America Corp.’s Merrill Lynch unit. Retailers must choose whether to swallow higher prices and lose profits, or try to pass them on to customers and risk sales amid weak consumer confidence, the bank said."
http://www.bloomberg.com/news/2013-07-04/christmas-candy-stockpiled-in-j...
>>The fuckers at the fed and BLS are liars, and they know it.
As long as the reputable news sources are not reporting it, it's not happening.
Maybe they won't report the Zimmerman verdict, either.
The hedge funds were pumping money into single family housing a short time ago and abruptly stopped after the first reports about increasing prices and rents came out in the markets they were buying in ... Do you think they had a "talking to" from the gov't about skewing the CPI statistics and how it would affect bond pricing...
The single family housing most affected by the uptick in prices are at the very high-end range. Hedge funds wouldn't give a flip about $70,000 homes for the obvious reason that there is little potential for price appreciation. Some idiot may well pay $1.5 for a house listed at $1M but those looking for the $70K house are not paying $100K. Almost all the rise is on the top end.
Correction: "As long as the DISreputable news sources are not reporting it, it's not happening."
Media newsreaders, propagandists, and their corporate moguls should all be hanged, including the disinformation cowards at FOXNEWS. They are destroying the U.S......for a god*damned paycheck.
STARVE THE BEAST!!!
Well someone is trying to do something about "false news" but usually things like this don't end well.
New Gambian Law: 'False News' Authors Face Jail"Gambia's parliament has made sweeping changes to the country's information law, introducing new legislation that threatens those who spread "false news" with 15 years in prison and $100,000 in fines."
http://www.voanews.com/content/authors-of-false-news-may-face-jail-time-...
"False news" being defined as the truth that contradicts the oligarch/government lies, of course.
This is all about crony selective enforcement.
Shut my TeeVee down 2 months ago. Feel a heck of a lot better, and you run into about 98% less horse shit in your life.
Starve that beast, too.
Hear! Hear!
Went from cable TV to a $17.95 small indoor antenna. I have to occasionally tolerate the local idiots on the local channels, but at least I'm not supporting the great propaganda machine pumping out their disinformation and lies.
Check out classic movies from your local library and be reminded how good movies used to be made without obligatory sex ecenes and foul, filthy, language.
Join the underground.
You can do better working part-time for yourself than you can working full-time for someone else.....Unless you have been deceived into believing you need more than you really need to live well.
STARVE THE BEAST!!!
Inflation YES?
INFLATION NO
Even my fav coffee shop just put up a sign. Free REFILLS are now a $1.00
As I've always said, the last great "substitution" the BLS can apply to magicly make inflation disappear is 10 cent 22 cal bullet = squirrel in the pot. I figure about $0.25 per pound. Fuck the BLS.