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Inflation: Compounding the Lie

“He lied like a finance minister on the eve of a devaluation” -Warren Buffett

What if all inflation numbers were a lie? What if the inflation number reported by the Bureau of Labor Statistics pushed inflation down by 3% per year? At that rate, it would take less than 25 years to cut the value of your savings and income in half even after it was supposedly inflation adjusted.

  • Government Intervention in the basket of goods associated with consumer price index (milk pricing is handled by the USDA)
  • Clinton era Hedonic Adjustments to the consumer price index (deflator variables in use by bureau of labor statistics)
  • So called Core Inflation that excludes Energy and Food prices (how do you live without food and energy)
  • Outsourcing production overseas (short term appears to control inflation, long term creates massive transfer of wealth out of country)
  • Asset Inflation (if house prices skyrocket, home owners think they made money, but what can that money buy? but rents not prices are used for the CPI)
  • Tax Collection (income tax rates are variable based on income brackets, unreported inflation means everyones tax rate goes up!)
  • Cancelled reporting of M3 (total quantity of money) as of March 23rd 2006 (just another way to make oversight more difficult for the citizen)

Politicians want to get re-elected, and they want to pay off their debts to the companies that finance their elections. Nobody ever won re-election for slowing the financial bleeding. Perhaps most importantly, nobody likes to pay higher taxes, and there are entire sections of the underground illicit economy that go untaxed. If you want to fund infinite government expenses, you’ve got to be creative.

Of course every union leader and every financier knows how inflation works, so they make sure long term contracts are inflation adjusted. If inflation is 10%, then the following year Social Security benefits, Government Wages and inflation adjusted government contracts will all be raised accordingly next year.

The politicians goal is to spend big but report a low inflation number, so that it’s easier to continue to spend big!

Torture the Numbers Enough, They Will Confess to Anything -Saying at GE

There are financial instruments like TIPS (Treasury Inflation Protected Securities) that supposedly are protecting you from inflation, but these are just another example of finance ministers massaging the numbers. Your not going to get paid in actual inflation terms, you’ll be paid in terms of reported inflation.

If the only thing restraining the elites from taking your money is self restraint, then you might read: The Best Way to Rob a Bank is to Own One.

You can read through the details of the CPI report, there’s no place that you’ll find the actual price paid. You’ll find the category such “Milk: Fresh Whole Milk” but you won’t see the price. More interesting, the entire price of Milk is itself a US Department of Agriculture orchestrated mess…

You should read the BLSs rebuttal to concerns that inflation is understated. They point out that the switch from measuring house prices to rental equivalencies was designed to isolate the “investment” nature of housing from it’s function. Pre-1981 numbers were based on prices. BLS also points out that EuroStat and many OECD countries (probably the UK) calculate their inflation numbers just like the US does.

John Williams at ShadowStats also wrote a response to the BLS rebuttal that I mostly agree with, though I propose a more direct challenge.

If the BLS numbers were not overstating inflation, instead of writing a report explaining that they are experts and you are not, they would simply release the RAW on each of the 8000 basic indexes in the 38 areas they measure. It’s a trivial amount of data by todays standards. Any modern computer can crunch this data easily. Of course, the BLS isn’t going to do that because the inflation numbers are significantly higher than reported. We’re talking an Excel table with:

  • 8000 items in “basket” measured for inflation.
    • Even if each “item” is the sum of other items, 80,000 or even 800,000 rows is still easily manageable
  • 38 regions measured by month
  • For each year, 1950 – present
  • Changes in weight assigned to that item

In addition to the ever more ridiculous understatements of inflation, this detail would also show how inflation numbers have been politically adjusted to help (or potentially hurt) certain candidates. Just remember how we got here…

“He lied like a finance minister on the eve of a devaluation” -Warren Buffett

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