The High Price Of Understated Inflation

Since the process of adjustment began in the early 1980s, the officially-reported CPI-U number has diverged ever further from the underlying figure calculated on the traditional methodology. Fig. 4.2 gives an approximate idea of quite how distorted US inflation data seems to have become over three decades. Instead of the 3.2% number reported for 2011, for example real inflation was probably at least 7%. Worse still, the official numbers probably understate the sharp pick-up in inflation which America has been experiencing. A realistic appreciation of the inflationary threat would be almost certain to have forced very significant changes in monetary policy.

Taken in aggregate, the extent to which the loss of dollar purchasing power has been understated is almost certainly enormous. Between 1985 and 2011, official data shows that the dollar lost 53% of its value, but the decrease in purchasing power might stand at more like 75% on the basis of underlying data stripped of hedonics, substitution and geometric weighting.

The ramifications of understated inflation are huge. First, of course, and since pay deals often relate to reported CPI, wage rises for millions of Americans have been much smaller than they otherwise would have been. Small wonder, then, that millions of Americans feel much poorer than official figures tell them is the case. By the same token, those Americans in receipt of index-related pensions and benefits, too, have seen the real value of their incomes decline as a result of the severe (and cumulative) understatement of inflation. Read more >>

The American middle class no longer matters on the global stage

Image via WikipediaThe ideal setup for Global Corporate America is domestic stability. The erosion of the American middle class is of little concern for one simple reason: it no longer matters much on the global stage. All that Global Corporate America needs from America is a stable foundation that won't offer up any surprises or spots of bother.

As the discretionary purchasing power of the American middle class erodes, four times as many new potential customers appear elsewhere, hungry to taste the Oreos, become consumed by the iPhone, etc., and ten times as many are potential buyers of toothpaste and other basics. U.S. corporations are pulling $500 billion in profits from non-U.S. sales, and they hold $1 trillion in stashed overseas profits in various tax havens. All the growth in their revenues and profits are coming from non-U.S. sources. Read more...

Hyperinflation Watch – Numbers Don’t Lie

Image by Getty Images via @daylifeFor several months I have been warning that hyperinflation of the US dollar is looming. The ominous signs of this impending currency train-wreck are becoming increasingly clear.

For example, crude oil is threatening to break above $90 per barrel. Copper has broken through $4 per pound to a record high price. The prices of many other commodities are also in uptrends. These commodities are not in short supply. There is no shortage of oil or copper. Rather, these high prices are the result of too much money printing, which if not quickly stopped by returning to a sound money policy will ultimately lead to hyperinflation.

Last week another important part of the hyperinflation puzzle fell into place. Long-term interest rates surged, continuing their sharp upward path that began two months ago. The 10-year T-note during this two month period has risen from 2.4% to end last week over 3.2%, a remarkable and therefore telling jump.

This rise in long-term rates lays bare the flawed logic of the Federal Reserve’s newly announced $600 billion so-called “Quantitative Easing” program supposedly designed to help the economy. This new round of money printing is not going to help the economy, which has been hollowed out by years of debt financed consumption along with too little savings and production. This money printing is serving only one purpose. This central bank trickery is providing the federal government with all the dollars it wants to spend.

So despite the fact the Fed will be purchasing $600 billion of US government debt instruments, T-bond and T-note yields are climbing, a clear sign that investors are rushing to sell their US government paper. Why? Because they know the purchasing power of the dollar is being debased by QE, and more importantly, will continue being debased. More...