A nice riposte to the newsfakers this a.m. Karl!

Quote:

Obviously the interest rates can't be taken much lower - but if price inflation gets to the point it can't be covered up they could set prices by decree. You know what happens then - the shelves go empty.

That's when communism will be fully implemented here in America. BTW, I remember one of the most dead-bang accurate critiques of communism was uttered by a worker in East Germany (or one of the old soviet satellites): "We pretend to work, and they pretend to pay us." It sums up a gummint-run economy quite nicely.

There is no free market when it is all run by the government. Also, inflation is a hell of a lot more than 2%, more like 8% to 10% and once the purchasing power rests with the top, it is things that are inflated. Anyone thing there isn't concerted buying on a daily basis by banks, think again. Juar watch. Watch gold. Gold up, market up. I think it is an indicator that more money is coming.. If banks are buying, they are actually front running inflation, as this is the first use of money. Whomever has the first use of money, gets a discount.

The first thing you do is throw everyone of those Fed governors and their staff in the street and shut the damn thing. This bank is the #1 shifter of wealth ever created in history. It allows government to load an expense on the economy that it wouldn't should we not have the bank. All the Fed has ever done is exactly the opposite of what they told us it would do. Every dime of money devaluation is done to benefit government and the rich, especially the bankers, who owe every ****ing penny of money in existence.

Anyone who has been to a grocery store lately can see that the price of REAL food has gone up a lot more than 6%.

I'd say since '07 food has gone up 30% total.

John William's Shadowstats.com:

1980 methodology (Volker): about 11% actual inflation.

1990: about 6% actual inflation.

Obviously, if the number starts to grow, they'll continue to adjust the methodology to show the number they wish to claim and defend.

Karl: Looking good in that picture over on Financial Sense. Is that a little "Dapper Dan" in your coif? LOL. You're a Hemingway type, so good poke fun there.

Oberservations from the road: Truck traffic is up some. Surprising January, a slow freight month. The truck stops that survived are packed and the interstate ramps are filling up. That's an increase of late. Bottom line: 60% of the 2008 volume. Up from a low of 45%.

Lastly about food inflation, and this is very sad. All the Flying Js came out of bankruptcy (purchased by Pilot) and made their in house restaurants Denny's. Think $8 menu for the grand slam, which includes OJ and Coffee. Man, I kid you not. Wifey and I are the only drivers dining. Yea, there's the old folks, because AARP has the 20% deal with Denny's; but no drivers....and I am talking with 300 trucks parked outside. Solo drivers are eating out of the frig. Another ham sandwich please.

Four years ago, drivers packed the J restaurants. Full breakfast was $5.

Remember, driver pay has been flat for a decade.

PS: Also gone are the great waitresses that did well. Now it's idiot high school girls. M

It’s not just a problem that it’s the core CPI that is typically quoted, devoid of food and energy costs thereby making it useless in judging the ability of most people to maintain a constant standard of living, the entire CPI is pure garbage, continuously too low by over 1.1% since 1997 thanks mostly to hedonics and substitution:

http://www.ritholtz.com/blog/2010/01/eco....

Excerpt:

“The Boskin Commission was one scandal that economists actually denounced. Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, said at the time “the debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.

“Barry Bosworth of the Brookings Institute called the revised CPI an ‘immaculate conception’ version of deficit reduction in which spending is cut without Congress taking the blame.

“The changes have lopped off far more than 1.1% in most years since 1997. From the time the changes were instituted through 2008, the compounding of an artificially low Consumer Price Index reduced payments to social security recipients by about half (according to John Williams, author of the newsletter Shadow Government Statistics).

“One adjustment may help to understand Boskin’s contribution to the impoverishment of older Americans. “Hedonic adjustments” by government number crunchers substitute imaginary prices for prices actually paid. Hedonic adjustments (purportedly, the “quality improvement” of an item) reduce the CPI. (Hedonic adjustments had been employed before the Boskin Commission, but sparingly. Afterwards, even the prices of textbooks – if they had color graphics – were adjusted for quality.)

“Steve Leuthold, founder and chief investment officer of the Leuthold Group, calculated the price of a new car in the U.S. had risen from $6,847 in 1979 to $27,940 in 2004. Using hedonic adjustments, the government calculated the price of a new car had risen from $6,847 in 1979 to $11,708 in 2004.

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Also using “substitution” in their bogus calculations, they calculate that if one can no longer afford steak, one buys hamburger. If one can no longer afford hamburger, one buys chicken. Rather than include the higher cost of the item once purchased, the price of the lower priced substitute item is used.

A major problem pointed out in the book "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve" is that the Fed actually uses the fedgov's bogus, manipulated CPI, employment and other figures in its market manipulations. They stupidly use gerrymandered, BS figures to make decisions!

Oh it's better than that.

As I documented in Leverage one of the better screwjobs with Hedonics is that they count things that you can't buy any more!

So they claim a LCD TV is ~43% "better" than a CRT one (lower power consumption, better picture, lighter, etc.) Ok, provided you can choose to buy the CRT one. But you can't -- they're not made any more, so you pay the 43% more or get nothing!

http://www.bloomberg.com/news/2012-02-08....

Quote:

“The statements were politically motivated,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York. With unemployment stalled above 8 percent for three years, “I don’t see how anybody in their right mind could form a strong argument for persistent, rapid inflation in the United States without the participation of the labor market.”

Hmmm. 'Labor'?

What portion of aggregate income in the US is from Private Sector 'Labor' ?

What portion of aggregate income in the US is from 'Non-Labor' so-called 'Service Sector' ?

What portion of aggregate income in the US is from 'Management' ?

What portion of aggregate income in the US is from if the pay and benefits of Government Employees?

Obama has recent asked for across the board salary increases for ALL Non-Military Federal Employees.
Obama has also called for $4 to $6 BILLION Dollars in Federal Funding to provide jobs for decommissioned Veterans as LEOs and Fire-fighters.
Of course this $4 to $6 BILLION Dollars would be spent in a very short period leaving Municipalities which took the initial Federal Funding to Tax their Local Citizens to fund the continued employment and benefits -and eventually the Retirement packages of these newly hired LEOs and Fire-Fighters.

-Not that nearly ALL forms of Crime seem to have been dropping for some 20 years in the United States according to published statistics; -thus calling into question whether it is really a good idea for the Federal Government to BORROW Money to further militarize Law Enforcement further and entice local Politicians to commit the Municipalities into contractual obligations concomitant with such initially subsidized hirings...

Where I reside locally, the Municipality has standing contracts with Public Education Employees, LEOs and Fire-Fighters which have yearly salary increases of 4%+ and which include providence of 100% Employer/Taxpayer funding of Medical Insurance/Benefits packages.
Note well that these numbers DO NOT include ANY provisions to meet the Costs of paying the Defined Retirement benefits Packages that are also included in these various Public Service Union Contracts...


When People refer to the Weimar Germany Hyper-Inflation experience They invariably recite the mantra that this Hyper-inflation was directly caused by the Wage-Price Inflation Spiral in 'Labor'.

This is at most a half-truth.
-The fact is: the Weimar Government impoverished it's Citizens via the Wage-Price Inflationary Spiral as during the Wage-Price Inflationary Spiral the production/productivity of 'Labor' DID NOT increase at a rate which offset the introduction of currency into the system.
The printed money did not result in higher productivity; -only in higher prices.

While this flood of currency inflated the Weimar Stock Market and provided immense paper profits to Corporations and the Owners thereof; it actually resulted in lower purchasing power and the impoverishment of 'Labor'.

In the United States the traditional 'Labor' Market that would under the same circumstance and policy has been supplanted by Government Employees and Bureaucrats, the Employees of Government mandated and protected/subsidized Cartels: Banks, Insurance Companies, Medical and Education Industry Employees, LEOs and Firefighters, etc...

IMHO, .GOV has been attempting to induce a Wage-Price Spiral; -and has been quite successfully in most cases I have cited above...

I contend that as compensation and benefits have risen in those sectors of the economy where cheap/free money has flown Tax Rate Tier thresh-holds have been crossed nullifying these increases as these 'gains' have actually been soaked up by varying levels of Government via Taxation.

I also contend that the Housing Bubble was also purposefully cultivated in part to Inflate Property Taxes and thus provide a Revenue Stream with which to achieve wage inflation in the Public Sector and in related Employment Sectors.
.GOV Debt Financing/Printing and Commercial Banking lending well beyond the original ( claimed/purported ) intention/design of Fractional Reserve Banking has flooded the Markets with cheap/'free' money which has Inflated Property Values -and allowed Local Governments to drive Property Taxes higher and fuel a directly associated bubbles in Public Service Pay and Benefits and in the Industries associated with these Public Service Employees.

The Housing Bubble was in part used to fund an otherwise unsustainable Wage Bubble.

IMHO, the same policy mistakes that were made by the Politicians and Bureaucrats and Ideologues of the Weimar -the same, or very similar policy mistakes- are being repeated by the Politicians and the Bureaucrats and Ideologues of the United States; albeit with a composition engendered by the Constituencies of the Politicians and Bureaucrats and Ideologues in positions to implement and protect these constructs within the context of the American Political landscape....

IMHO, the ONLY question is whether the final destruction of the United States will appear to manifest as an outright collapse in the value of the currency, or in a collapse of production as costs for production exceed the stress of inflationary devaluation/purchasing power; or in a disorderly unwind/outright default of the Treasury Complex ( which is the mechanism which by and large propels currency emission entirely disassociated with productivity ) and the U.S. Federal Government and ALL associated State and Local Government Finance Constructs.

I BOLD the word 'appear' above as for most People living through a prolonged devaluation or a disorderly 'resolution' to these problems will not likely be able to, or be much interested in; identifying exactly what has actually taken place in the midst of their daily toils.
-Which ever blade of the spinning fan the **** hits there is going to be a hell of a mess...

As I perceive the situation, Our choices are:

1. Outright collapse in the value of U.S. Dollar/Federal Reserve Note: 'Monetary Reset'.

2. Sustained Stagflation/Inflation/Devaluation or an outright Hyper-Inflation.

3. Collapse of the U.S. Government leading to a Deflationary Collapse as Government supports for sheltered Constituencies and Industries evaporate allowing Market forces to seek true valuations for goods and services.

4. WAR: waged and won in the the old-style; with extraction of 'Tribute' ( sacking and pillaging by the Victors ).

-&, NO: I DO NOT think American 'Military Superiority' is a foregone conclusion -if for no other reason than the simple fact that the United States is NOT Energy Independent.
Access to Oil ( and other commodities necessary for waging conventional War ) may in fact be deciding factors in the outcome of hostilities if this is the path taken...

Let Me be clear as to MY thinking on this subject: the destruction of a couple of very long and very much exposed pipelines, and the destruction of a half dozen ports and refineries, would not only imperil the U.S. Economy; but, seriously impede the activities of the Conventional/Non-Nuclear American Military.

-& breaking out the Nukes?
I will leave the possible response(s) to such an undertaking to your imagination...


As there is NO political will to force an unwind of the bad debt in the Monetary System ( as this would entail a brutal DEPRESSION and utter destruction of most if not ALL of the Banks, Insurance Companies and Pension Funds both 'Public' and 'Private' ) and reform the Fiscal policies of the U.S. Government through Austerity and Taxation/Confiscation regimes; -I simply no longer believe that it is possible to salvage and sustain the System.

Most regrettably, it is My view that voting is irrelevant as there is NO Candidate for with the visibility or viability or determination or political support to even attempt to reform the prevailing thoroughly corrupt and dysfunctional Construct.

"The CPI index says that for a "median" family about 15% of your budget will go to "food and beverages", with 7.8% of it being "food at home." For a median income of $50,000 this is $3,900 a year, or $325 a month."

I read this to mean that a family would spend $7,500 per year on food, total (15% of 50k). That works out to $625 per month, which would be adequate even for a family of four if it were all spent on food at home. However, only about half of that money is spent at home; only $325 per month of it. The other $300 per month, per the CPI index, is eaten out. That would make things more difficult.

The problem of course is that so many things are going up in price, so families are stuck taking money from their food budget to spend elsewhere.

Is it possible to make the case inflation in the medical and education markets is due to the fed and deficit policies the last 30 years?

If 50% of medical costs are paid by the government, isn't that 50% more than the population can afford? Same for education - heavily subsidized - and heavily inflated.

Could that be the "missing mass" of evidence of inflation due to printing and borrowing?

Yes.

I like how your y/o/y comparison of deficit and GDP growth shows we never get payback.

Have you ever tried a chart connecting the deficit and printing with inflation in these markets?

Karl, wasn't real estate taken out of Inflation reports at some point back in the 80's due to their fast rising and undesired affect on those Inflation numbers?

If so, I'm a little surprised they didn't bake them back in to today's formula since about 2005, even retroactively. This hasn't even been trotted out.

'And if you account for the collapse in real estate, inflation has decreased blah blah blah'.

I think I'm gonna explain Hedonics to the kids tonight.

Owner's Equivalent Rent, yes. An intentional distortion.