Saturday, May 21, 2011

What Inflation? Round 2

Last year in October, I wrote a blog called "What Inflation?", chronicling the depressing - yet meteoric - rise of commodities prices. Kitco's exposure of a 38.6% increase in the price of a basket of raw & wholesale goods really highlighted the gap between reality and the utter bullshit that Tim Geithner, Ben Bernanke and most of the rest of government would like us to believe.

Recently, the Heartland Institute posted a blog post on "deciphering" Bernanke's nonsense:
"Bernanke: FOMC participants see inflation remaining low; most project that overall inflation will be about 1-1/4 to 1-3/4 percent this year and in the range of 1 to 2 percent next year and in 2013. Private-sector forecasters generally also anticipate subdued inflation over the next few years. Measures of medium- and long-term inflation compensation derived from inflation-indexed Treasury bonds appear broadly consistent with these forecasts.

More broadly, the increases in commodity prices in recent months have largely reflected rising global demand for raw materials, particularly in some fast-growing emerging market economies, coupled with constraints on global supply in some cases. Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months.

Deciphered: The Fed doesn’t recognize a lag between its creation of money and an increase in current dollar spending. Instead we prefer to look at inflation over the past year as a guide to whether we create too much money. Just because this means we have often reacted two to three years too late in responding to any inflation threat doesn’t bother us at all."
Seriously though... Bernanke claims that inflation will be about 1.25-1.75% for this year.


Well, why don't we look at a few graphs, huh? There aren't a lot of great ways to calculate price increases, but as we know, the Consumer Price Index is certainly one of them. So what's CPI look like over the last year? Let's check it out:

To be clear, I've chosen this graph, which includes commodities that standard CPI disincludes, because in my world, real people buy food and energy, and when those prices go up that actually effects real people. So let's ask ourselves.... Does it look to you like there hasn't been any inflation? Looks like that to me...

BLS is actually reporting that non-annualized inflation over the past year has been higher than Bernanke's comments would suggest:
" The 12-month increases of major indexes continue to climb. The all items index rose 3.2 percent for the 12 months ending April 2011, the highest figure since October 2008. The energy index has now risen 19.0 percent over the last 12 months, with the gasoline index up 33.1 percent. The food index has risen 3.2 percent while the index for all items less food and energy has increased 1.3 percent; both figures represent increases over recent months."
Of course, I'm only using government metrics so far, which are spectacularly weak measurements for inflation and are predictably ridiculously biased towards making the government look good... or failing that, at least to making them look not like the royal failures they actually are on economic issues.

So what's a more accurate inflation rate?

Economist, Marc Faber is calculating between 5-8% inflation. ShadowStats is calculating the real inflation rate (using consistent reporting standards from the 1990s) at around 11%. CPI measurements have drastically changed over the years, always to make the statistics seem "better" - just like the government's definition of "recessions" and their calculations for unemployment rates.

The changes in data collection are usually packaged as "improvements", but the reality is that they make comparisons to historical economic events really tricky. People look at the 16+% unemployment rate during the Great Depression, and they think... Well hey, our 9-10% isn't so bad! Alas, by 1940 standards, our unemployment rate is around 17%.

Whoops! Metrics matter. Changing calculation methods matters. Without understanding this stuff, there's no way for people to understand the numbers the government has been churning out over the last few years.

Additionally... It's probably a good time to have a little refresher course on how ridiculously bad Keynesians predictions - who, it should be noted, make a special point of viewing economics as a "predictive" science - have actually been over the last 100 years.

Thomas Woods handles that nicely:

Yeah. They're not very good at this at all.

Yet we constantly listen to people like Bernanke, Krugman, DeLong, Summers, Romer(s), Goolsbee, Geithner, etc. and let them continually make adjusted "predictions" that turn out to be utterly false. These people are wrong time and time again, and yet each time they make a pronouncement about how the economy is doing, and what it's going to look like within the next 6 months, we act like they know what they're doing.

They don't.

Simply put, Bernanke is full of shit. I don't know how else to say it. Anyone with half a brain who has been doing their own shopping over the last year knows full-well that prices have shot up. Anyone who has remotely been paying attention to the job situation in the United States knows that the unemployment situation is still shockingly bad.

ShadowStats also provides a breakdown of unemployment rates.

Real metrics on that put us close to - if not well over - 20%. The 9% the government claims we're at right now relies on an extremely limited definition of the "labor force" and simply omits millions of people who would love to be working or who would love to work a hell of a lot more than they are currently working. If you're an engineer working at McDonald's part time.... Guess what, you count as "employed"!!

I suspect your family doesn't really see it that way though.

Get that? We're seeing consistently high unemployment (going on 3 years now). We've got a consistently high inflation rate, in spite of what the government has been saying. What does that mean to you?

Did you say "Stagflation"? Man... I did!

One way or another, I'm sick of going over this again and again and again. The government is lying. Simple as that. They've been doing it for pretty much the whole of its existence and I'm not sure why we should think they'd have stopped in the middle of a horrendous recession, caused primarily by the government's previously enacted policies. But no matter how nonsensical their numbers, no matter how much this stuff doesn't remotely line up with obvious, observable reality, a ton of people are still totally happy to lap it up.

What? GDP is increasing? Well that's great!!

Never mind that these numbers merely reflect the expansion of the currency and the inevitable price increases that have been generated as a result. 

Yes friends... Inflation is real. It's taking huge bites out of your dollar's purchasing power, and the fact that you're job situation and salary hasn't really improved at all means that each dollar counts more and more.

Seriously though... It's time we all started ignoring Bernanke. He's a moron.

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