Let Them Eat iPads: 14-Years Of Data Debunk Fed’s Inflation Shortfall Canard

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

Fed Chair Janet Yellen thinks the US economy is under-performing because we don’t have enough inflation:

“Inflation has continued to run below the committee’s 2 percent objective… the FOMC continues to expect inflation to move gradually back towards its objective….(but)… is mindful that inflation running persistently below its objective could pose risks to economic performance.”

This is not simply another case of “Let them eat iPads” cynicism. Hitting the wholly arbitrary 2% inflation target is sacred doctrine inside the Eccles Cathedral, and Yellen takes her scriptures, along with her money printing, every bit as literally did as the legendary William Jennings Bryan. Indeed, failing the inflation target “from below” amounts to a Cardinal Sin.

So not surprisingly, during the past 168 months running the rate of inflation according to the Fed’s preferred measure called the PCE deflator has come in exactly at a 2.0 CAGR - the annual rate embedded in the 14-year index gain of 31.65% shown in the table below. You might think the paint-by-the-numbers Keynesians who run the Fed would be thoroughly satisfied with their inflation targeting performance—even if, as Paul Volcker cogently noted, it does mathematically result in the theft of half of a working man’s savings over his lifetime.

Not exactly. The monetary politburo has been gumming about periodic bouts of too-low inflation and even “deflation” ever since Bernanke arrived in 2002. Yet unless the Fed’s unrelenting pursuit of “mission creep” has led it to the conclusion that its mandate under the wholly elastic and content-free Humphrey-Hawkins Act requires hitting its quantitative targets on an annualized seasonally-maladjusted basis every week, there is not a hint of inflation shortfall during the entire 21st Century to date.

In fact, the table above presents the cost-of-living increases that have been endured by that substantial share of the public which has eaten food or consumed fuel sometime during the past 14 years. At best, according to the official CPI—which is apparently good enough for 50 million Social Security recipients— the cost of living has actually risen by 2.4% per year or 39 percent over the period.

And even that’s got some self-evident understatement to it. Fully 25% of the CPI is accounted for by “imputed rents” on owner-occupied homes. This figure is obtained by a BLS survey of approximately 0.0002% of the nation’s 75 million homeowners asking what they would charge to rent their homes to a stranger each month. Needless to say, the tens of millions of households who have struggled with mortgage foreclosures, delinquencies and under-water loans since the housing bust have undoubtedly not been very bullish about their rental market prospects—even as their actual cash expenses for property taxes, utilities and household repair and maintenance expenses have continued to surge.

So when you get by the rent imputations and the ”hedonic adjustments”  for cars, toasters, big screen TVs and iPads— the rest of the cost-of-living menu has been downright inflationary. Renters’ costs have risen one-third faster than the Fed’s target; electricity bills rose by double; college tuition is up by 2.3X and ground beef, eggs, movie tickets and health care by three-fold.  And, of course, hydrocarbon-based energy is not even in the Fed’s zip code: Gasoline prices have out-run the target by 5X since January 2000 and  home heating oil in places like the Northeast by 6X.

In short, the idea of “under-shooting inflation from below” is just ritual incantation. It provides the monetary central planners an excuse to keep the printing presses running red hot, but the true aim is not hard to see. After a 30 year rolling national LBO that has taken credit market debt outstanding to $59 trillion and to an off-the-charts leverage ratio of 3.5X national income, the American economy is saddled with $30 trillion of incremental household, business, financial and public debt compared to its historically sound leverage ratio of 1.5X GDP.

We are at peak debt. Household, business and government balance sheets are tapped-out.  The problem is not too little CPI inflation, but the unavoidability of a pay-back era of sustained debt deflation. Yet the entire purpose of the Fed’s money printing regime—ZIRP, QE and all the rest—-is to force more debt into an economy that is already saturated. And as I have demonstrated elsewhere, the end result is that the Fed’s massive liquidity injections do not flow into the busted and exhausted Main Street credit channel, but only into the “Wall Street Bubble Channel” where they fund endless carry trades, speculations and eventually rip-roaring bubbles.

Nor has the picture changed since the 2008 financial crisis—that is, there exists no newly threatening deflationary bias, as shown above. Officially measured inflation continues to oscillate in a narrow band around 2% like it has since the late 1990s. The idea of missing the inflation target from below is just central bank jabberwocky—-a lie that actually harms the vast portion of Main Street America where incomes have lagged behind actual inflation for most of the 21st Century.

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ebworthen's picture

What?  Do you expect them to pay more on TIPS and S.S. adjustments?

So much easier to lie and pay 0.05% on savings.

Not to mention "no inflation" headlines for nightly "news".

Boris Alatovkrap's picture

Money mechanics is hiding of real problem, stalled productivity. What is stall productivity? Uncertainty. Uncertainty of what is dollar of earning worth... what is safe place to keep money... what is law and how long until law is squash by executive order or patent disregard? When citizenry is spend more time hiding money between mattress or dig up shiny metal to take shiny metal and bury in vault, then where is real wealth creating? Who is create uncertainty? Corrupt expansive government.

...meh, but what is Boris know?

zaphod's picture

The fact that most of the general public buys into and accepts that "no inflation" headline (including my dad) as fact, simply demonstrates to our banking elite that the world is populated by sheep who they can easily lie to and steal from at will. 

madcows's picture

I disagree.  I think the vast majority of people think the official statistics are 100% lies intended to mislead the citizens.

The only people who wouldn't challenge it are the folks who get their food for free, and the folks whose income is so large that they don't do their own shopping.  In other words, the inner city folks, the illegal aliens, and washington DC....Disctric of Criminals.

mkhs's picture

End the FED.



This message is NSA approved.

Boris Alatovkrap's picture

This is what USSA politician is perform every day in boudoir of congress and Lincoln bedroom, exchange toxic bodily fluid between corporatist and statist regime.

JP McManus's picture

My question is, where are you getting your ground beef for $3.73?? or is that the 70/30 mix hormone injected Wal-mart price?

disabledvet's picture

"Including the hoof."
This is Peak Prosperity.
There is no way to repay this "honestly."

So we must use "deceit and deception." Unfortunately...life just doesn't work this way. "And we dig the hole deeper" and the lies just get bigger and more ridiculous from here.

In Nixon Parlance "you have a credibility gap."
It can be filled "with the cabbage" as they say.

That's a lot of cabbage. Cash. "Greenmail."

With interest rates this low the only incentive is to raise capital.
The mistake of course is not to deploy that capital..."but that is behind us now." The past is prologue and this is one hell of a story we're working here.

The fact that everyone knows the ending...does it reduce the suspense? And of course the answer is "no." When "it" gets serious..."you have to lie."

cossack55's picture

No shit.

grnd chuck        $ 4.60

grnd round        $ 5.20

grnd sirloin        $ 5.70


as of yesterday

SheepDog-One's picture

No shit, I bought some strip steaks for $12 a pound last weekend which I'm pretty convinced was horse or goat or something, just terrible.

pods's picture

Well they all can't win the derby.


Al Huxley's picture

So Central Bankers are monstrous cocksuckers in service to the vile, sociopathic, self-serving wealthy elite who created them - and steal the majority's money to hand it over to their owners, first via inflation, and now via blatantly confiscatory policies like ZIRP and the manipulation of stock and bond markets with impunity.  And the general population has been dumbed down enough and cowed enough that they let it happen without a complaint.  What a shock.

disabledvet's picture

Worse still...there's no money in it.

Offthebeach's picture

Before 1913, and since then The Fed said it was for, and to, stabilize money supply and credit creation. But it trashes stability with printing presses. ZIRP, or Volkers 18% , or water carrying trillions in Fed Gov paper and future popular delusions. The Fed is the schizophrenic word salad agent of destruction. No one knows what, when it will or won't act. We are all hostages on Flight Fed Reserve.

1stepcloser's picture

Need more inflation (Debt) to keep their Ponzi Debt scheme going...or debt collapse... either way we are fucked

Al Huxley's picture

No, they'll do the slow grind, pushing people harder and harder, but never over the edge, and just gradually transition into feudalism.  Give it another 20 years.

1stepcloser's picture

You think we have 20 years left, I'm calling you an optimist.  I figured the petro-dollar is on life support... but 20 years...ok hope ur right...

cossack55's picture

Twenty years from now I'll need scopes longer than the fuckin' rifle. Just bring it. If it is coming, why wait?

daveO's picture

Peak debt(debt slavery) is here now. 

alangreedspank's picture

This figure is obtained by a BLS survey of approximately 0.0002% of the nation’s 75 million homeowners asking what they would charge to rent their homes to a stranger each month.

If that's really how they do it, that's bogus. It's either overstating, or understating, but bogus. If you've never been a landlord, you have no idea what is the correct price you need to charge for such a service. That's like asking someone who's clueless about welding how much would they charge if they were one.

Again, models fail and the Fed is nothing but a pile of models.

SheepDog-One's picture

But haven't stawks made everyone rich beyond their wild ass dreams?

Skin666's picture

Stockman is on fire!!!

daveO's picture

Are these prices adjusted for productivity. When you look at the Inflation charts above, it lists the price in 2000 and now. Well, how about adjusting for productivity. For prices to be up in spite of productivity gains means that the FED has stolen all productivity gains and still taxed us 2% annually. The only things that have gone lower in price are electronics. I'll bet that's what keeps them up at night!!! 'How can we steal that gain, too?' 

withglee's picture

The only proper value for inflation of the Medium of Exchange (MOE) is zero ... and it's easy to achieve if you can perfectly monitor defaults. Right now we don't monitor defaults, even imperfectly, and never have though it would be trivial to do so.

earleflorida's picture

I'd like to go as far back to Jan-Apr/1946, when America's unions were fighting for their 1st raises since WWII & VJ. They were a power to be reckoned with... that had organized exponentially with much clout over the industrial revolution period?

It was the Unions that fought for cost-of-living-expenses and fringe benefits (today, however you can't eat fringe benefits?) that made America's middle-Class. Basically, they (unions) wanted catch-up pay for years of war, where they had sacrificed a living wage for the countries success in victory defeating the real 'Evil Axis'! 

Now, some history from Truman's 2nd year in office regarding Unions! The Steel Worker's Union headed by Phil Murray called for a wage increase of 19.5cent/hr, and US Steel wouldn't budge from their 15 cent/hr offer-- 1000 mills closed acrossed the country and 800,000 walked off the job in the biggest strike in history. The whole country was was striking, from 200,000  meatpackers, to glass workers, telephone, and on top of all that, a huge strike at GEneral Electric. In Pittsburg alone it affected 100,000 other unionized workers. Streetcars, and subways stopped running and office buildings closed throughout the country. It was unprecedented the largest union strike in America's history. Eventually it was settled by the Gov't Commission on Labor Arbitrage (faux? Fact-Finding Board?) for 18.5cents/hr raise... the other striking pretty much got what they wanted. Truman was a lower-middle class Missourian who had heartfelt empathy for the working man, and cared not for Big Business/Corporations! 

                                                                 But, it is John L Lewis of the United Mine Workers that called for a nation-wide coal strike that shook the polical courage of the 'New Deal' to it's knees. Hundreds of thousands of workers had only ever dreamed of in the not so distant past of striking 'Big Brother Corporate America', now with a 51%/49% chance of turning the tables on Big Business, and sharing some of the loot from their sweat and blood. Lewis wanted a 5% royalty on every ton of coal produced for the miner's 'Welfare Fund'? Truman disliked Lewis immensely and thought of him as nothing more than a crooked politician or worse!?! Without coal every major industry was affected. Steel mills closing furnaces-- Ford and Chyrsyler we4re forced to close, and freight loading was off by 75%. Chicago had (ordered) cut its use of electricity by half! The picture became clear that the Unions now had the country by the balls!!! (Communist organization bandied about???, later) Truman had said that Big Money and Big Unions have to much power! Lewis got pretty much what he wanted, but what was to come next changed labor and business history forever?!?

A RailRoad strike was coming as the coal strike was about to end. A. F. Whitney, president of the "Brotherhood of Railroad Trainmen", and Alvanley Johnson, president of the "Brotherhood of Locomotive Engineers". Whitney and Johnson both powerful, but it was Whitney that controlled /represented? moar than 200,000 trainmen in 1,145 "Lodges" nationwide! Johnso spoke for 80,000 locomotive engineers, and between the two, they could shut down every railroad, passenger/ freight service trains from coast-to-coast and nobody could do anything about it! Period! 

To make a long story short, Truman signs a executive order on May 17, 1946 (Truman gives them the gun???), and it was settled in the 11th hour.

This, as I mentioned was the beginning of the end for organized labor? In the 70's Nixon puts a nail in their coffin and Reagan pretty much makes than a non-factor in the 80's!

The Union's were marginalized to zero by Bush #41 and totally extinct by Clintons NAFTA/ CAFTA/WTO, etc., etc.,...

So today we have no unions fighting for higher wages or benefits that made the middle-class what it was. Today we see the results-- no MOAR Middle-Class, and a whole lotta poor 99% er's, ~ 68 Years hence! u go ussa


thankyou Tyler

razorthin's picture

I do have to say that my new Mac Book Air is pretty sweet.  1Gbps bichez.  And made in China.