The Bare Fraud In The CPI
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2018-01-09 08:49 by Karl Denninger
in Housing , 168 references Ignore this thread
The Bare Fraud In The CPI
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One of the interesting subtexts in today's appearance on Stocks-n-Jocks today was related to the economic statistics.  I covered a big part of the intentional distortions in "Leverage", but wanted to recap one of those areas that in particular has a huge problem, simply because it makes up so much of most people's monthly expenditures.

That's housing.

The CPI indices do not include house prices at all.  They instead include what is called owner's equivalent rent, which is what the government estimates you could rent your primary residence for had you chosen to rent instead of buy.

There are two problems with this and both are intentional.

First, you didn't rent if you bought a house -- you bought one!

Second, and most-important, is this fundamental fact about borrowed funds.

Let's assume you have $1,200 a month to spend an a house payment.  Let's further assume that we're coming out of the high-inflation 1980s and the best mortgage deal you can find has a 10% interest rate.

You can buy a $137,880 house with that payment.

Now rates drop to 4%, which they recently did.

You can now buy a $252,191 house with the same payment.

Rents, of course, are fundamentally based on the cost of money to buy a thing, and not the price of the thing, plus (of course) some rate of profit.  But the percentage of profit generally doesn't move much assuming competitive pressure remains roughly equal.

Note that the CPI would claim that the "owner's equivalent rent" between these two points in time had not changed at all because in both cases the monthly nut for said home would still be $1,200.

However the price of the house has risen by about 83% over that same time frame.

It is important to remember that we have been in a 30 year secular declining interest rate environment and thus this distortion is not only pervasive it is intentional.  That is, the Bureau of Lies and Scams has intentionally and systemically, by design and on a massive basis, understated inflation in the economy for the last 30 years.

Now, for extra credit, figure out what happens to "Owner's Equivalent Rent" and thus inflation figures published by the government when that trend reverses and rates generally, over a long period of time, are rising -- and so are taxes, which of course are added dollar-for-dollar to rents.

Oh, you thought there was a free lunch eh?

smiley

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Tsherry
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Cue the mushroom cloud.

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Bodhi
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In addition to "Owner's Equivalent Rent" is the cost of maintenance, property taxes, insurance, etc. which have also seen price increases matching or exceeding the rate of increase in housing prices. So that $1200/month could easily turn into $2000/month in the high tax states. My son just bought his first house in NY for about $300,000 and the property tax is close to $10,000/year, or about $800/month.

The reported CPI is a farce, as anyone who spends their own money would know.
Nevertoolate
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Precisely the reason .gov can't/won't let interest rates rise. They will keep playing this "hide the sausage" game until there is no more game. TINA (There Is No Alternative) is the rule by which we are now playing) Never in history has this kind of financial crap gone on. Yes, this time is different. It will cause a global financial meltdown that will make the 30's look like a Sunday school picnic. The banks (cancer) will have finally killed the host.

It can't end well because they are admittedly going to continue on until they reach the "Thelma and Louise" moment. It will be a catastrophic ending and will decimate the entire industrialized portions of the planet.

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Democracy is a conversation between 2 wolves & a sheep discussing what's for dinner. A Constitutional Republic is found when the sheep pulls out a gun & makes clear that his 2nd Amendment Right will be exercised should the wolves attempt to hold such a "vote."-KD 9-29-15
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My kids buy chips. The bag is still the same size it was 10 years ago, but it's got half the number of chips in it.

I buy yogurt occasionally. Chobani has kept the same size container, but in 10 years has gone from 8oz to 6oz and now to 5.3 oz.

The price of bacon has doubled in 10 years. In 2000 I could buy 5 lbs of pre-sliced Land O Lakes american cheese for $10. Now that's probably at least doubled.

My gf works in a deli, so I get the store brands for far cheaper.

The t-shirts i buy are still the same price, but compare them to shirts from 10 years ago and the material is thinner and less robust.

Cars, anyone? I paid 11K for a used 2006 Taurus in 2006, which was about 7K off it's original purchase price. There's no way I could get 40% off of a 2015 Taurus with 14K miles on it today. Nevermind a new 2015 Taurus was at least $25-30K.

Wis/min
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info: S&J recording quits around min. 87
Nevertoolate
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Ckam-totally right. But air has a great profit margin in it. Doesn't add weight only volume. Problem is it's ok, "everybodys doing it" only works for so long. Eventually, you can't trick f__k the consumer any further and then you are stuck with declining profits or raising prices which leads to declining profits. You are then left with using free money to buy back stock to make what profit you have look better so you can get your bonus. Nobody gives a **** about what happens down the road because "I'll be gone/retired/dead by then."

And how about the deceptive practices in paper products? Specifically paper towels and toilet paper. Size of cardboard tubes and width? There is no way on earth one can price compare these products. Number of sheets and ply thickness? Yeah, right?

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Democracy is a conversation between 2 wolves & a sheep discussing what's for dinner. A Constitutional Republic is found when the sheep pulls out a gun & makes clear that his 2nd Amendment Right will be exercised should the wolves attempt to hold such a "vote."-KD 9-29-15
Click
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Yeah. For sure. When the record-low-interest-rate trend reverses --- and the prime rate rises back up above 5% --- is when the SHTF. Big time! The housing market has a date with an epic collapse. Oh yes! And if that moment happens during Trump's term (and it might) then just watch how fast everything gets sucked down into the Swamp --- including Trump. Remember Hoover? A better businessman, a better president and a better man than Trump, yet look at what happened to him when the market(s) reversed in 29'. Add to the current pile of **** the demographic nightmare of 10,000 per day of the baby boomers being added to both private and public retirement plans --- which wasn't a worry in 29'... ouch... Add to that tens of millions of illegals ( and legals ) sucking off every government program they possibly can which weren't around in 29' ... ouch... Add to that that global debt is reaching into ( depending on who you listen to and how you tabulate) the hundreds of trillions of dollars in thin-air money --- gold was money in 29'... double ouch... And let's not forget that anthropogenic global warming is a big ****ing lie that is going to catch the ignorant masses totally off guard, because the climate is probably going to due just the opposite and cool so much that is will put at risk millions of acres of farmland; thus, there will probably be massive food inflation ( and real hunger). Of course the ignorant masses ( especially in Europe) will demand more Marxism... And we all know what Marxism does to food supplies and economies.

Perhaps it might be wise to invest a small amount of time and money in learning how to grow some food in adversely cold conditions... The learning curve in gardening is roughly about three years... Something to think about. Because food was actually the first form of commodity money. And if the interest rates rise high enough during this next cycle, it will cause a currency crisis in the dollar. And if the dollar collapses into dust right along with Trump Tower, then food becomes barter money... I'm not saying go crazy and radically change your lifestyle by becoming a farmer: however, speaking from experience, gardening ( or raising livestock ( even rabbits)) is quite rewarding for certain types of people even if there is never a collapse.
Lobo
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Several years ago I started keeping track of spending and divided it into several categories. The picture below is our grocery spending since 1995, normalized to 1995. What we eat hasn't changed a lot over the past 22 years, although we have cut carbs the last 10 years or so.

Uh, why does that curve look familiar?

Inline

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Krzelune
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My wife bought a can of pringles the other day. I haven't even seen a pringle close up in about 10 years. Those are not pringles, they are shrinkles. They are literally 1/3 smaller than they were the last time I saw one. My wife swears the can is shorter too but my memory isn't good enough to be able to confirm that.
Goforbroke
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Anecdotal ...

So I took my kids to see a movie. We get there half hour early, only to discover that Cinemark has installed "luxury recliners" in the auditoriums, halving (if not cutting to one third) the capacity. And there are reserved seats. We couldn't get three adjacent seats, so we left.

Came back a couple of days later, same thing.

The only way to get any seat (much less three adjacent seats) is to reserve tickets online ... for an additional charge of $1.50 per ticket. Or, join their "Movie Club" for $8.99 a month, where you get one ticket, 20% off the concession items, and the opportunity to buy additional tickets for $8.99 each. When the listed/posted price is $5/$8.50.

They should be ashamed of themselves. Advertising something as a benefit to customers when it's really designed to squeeze more out of them.

I am never going there again.

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Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our Light, and not our Darkness, that most frightens us. -- Marianne Williamson
Nevertoolate
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I quit going to movies years ago for less reasons than that. Prices were crazy, refreshments even worse and then you have to put up with 20 minutes or so of commercials. There are only a handful of shows that I even care to watch that come out each year. For the money I am saving, I can either do a PPV (which is damn near as bad a ripoff) or just wait for it to show up for free (I've got plenty of time). Besides who wants to support Hollywood anyway?

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Democracy is a conversation between 2 wolves & a sheep discussing what's for dinner. A Constitutional Republic is found when the sheep pulls out a gun & makes clear that his 2nd Amendment Right will be exercised should the wolves attempt to hold such a "vote."-KD 9-29-15
Ckaminski
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The #1 reason I stopped going to movies except under extreme duress (and why I mostly am no longer doing traditional theater or concerts either) is that the purveyors are doing absolutely nothing about the idiots on cellphones ruining the experience for everyone else.

It doesn't help most of them are now selling all their open tickets immediately to the secondary market, pretty much instantly doubling the price.

The bezzle just doesn't end.

Quote:
Besides who wants to support Hollywood anyway?


Torrent. Show them the same regard they show you.


Aztrader
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The fed is using wage inflation. What a joke. They completely ignore all the stuff that matters.
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