The greatest trick the Fed ever pulled

Another quarter tucked away. Another three months of addled statistics and cockamamie figures.

Is that expensive, or cheap? How much do you earn? Is the economy growing? Are we getting richer or poorer?

It all depends on how you measure inflation. If nominal GDP is falling at a 0.8% rate – as it did during the first quarter, and prices are going up at a 2.1% rate – as the feds say they did during the first quarter, you get a ‘growth’ rate of minus 2.9%.

Incomes, too, depend on how much inflation you take out of them. The median household earns less this year than it did in 2000. Today’s level is about $50,000 – said to be about 7% lower than it was 13 years ago.

“Disappointing”, “worrying”, “lacklustre” – those are the words the press has chosen to use to describe this situation. Had the numbers been more truthful, we would have heard words like “disastrous”, “catastrophic” and “oh sh**!”

But heck, we don’t trust numbers, especially when we make them up ourselves. Here’s Bloomberg with more proof that the inflation figures lie:

“There’s the official inflation rate. And then there’s the real one…

“A new report from the American Institute for Economic Research shows how rising costs for certain necessities make many Americans’ personal inflation rate much higher…

“So while the CPI is up 47 percent since 2000, the institute’s Everyday Price Index (EPI) is up 69 percent. Unlike the CPI, which tracks more than 200 categories from breakfast cereal to funeral expenses, the Everyday index includes only the prices of frequently purchased goods and services.”

The article goes on to tell us that we can avoid these higher costs by not owning a house or a car, by not eating very much and remaining young forever. “For ageing Americans”, the report continues, “it’s rising healthcare costs that really hurt”.

Well, that does it for us. We weren’t that keen on ageing anyway.


Bill Bonner on markets, economics & the madness of crowds

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Calculating consumer price increases is not as easy as it looks. Let’s cut the feds some slack. Consumers’ cost of living is subject to interpretation, jiggling, jiving, and outright fraud.

But our beef with the feds is not that they pretend to calculate things like inflation, unemployment and GDP growth correctly, it’s that they think they have some special power – never demonstrated – to make these things turn out better than they otherwise would.

They think they can turn water into wine, and multiply the loaves and the fishes. And they claim to be able to perform these miracles by manipulating the price of credit. This, as we said yesterday, it is either remarkably naive or mind-bogglingly stupid.

Or plain self-serving claptrap.

Look, the feds aren’t stupid. They know what they are doing. They are transferring money and power to themselves and their crony sidekicks.

It doesn’t help the average person to understate the rise in consumer prices. The typical household knows what things cost. Underestimating the cost of living doesn’t help it, nor is it helped by over-stating (by failing to adjust properly for inflation) GDP growth and incomes.

Super-low interest rates don’t help the typical household either. Households are net savers. Low rates deprive them of income while providing a bonus to big borrowers.

Who’s the biggest borrower of all? You have raced ahead of us, haven’t you, dear reader? You know the feds borrow more than anyone. And you also know that – unlike household borrowers – the feds have no intention of ever paying it off. They simply roll over their debt, add to it, and count on the central bank to provide the money.

This is the system that has evolved over the last 100 years, since the founding of the Fed in 1913 – fraudulent numbers, jackass theories, price fixing, and market manipulation; bubbles, busts, and bum outcomes.

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