Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18
Stock Market - This Time is Different. Really?! - 13th Feb 18
Gold and Silver Long-term Buy, Short-term Sell Signal - 13th Feb 18
SPX Futures Are Sliding... - 13th Feb 18
Stock Market Topping Process Begins. The Bubble Finds its Pin - 13th Feb 18
Math Behind the Stock Market Crash and What’s Next – PART2 - 13th Feb 18
Gold Stocks Groundhog Week - 13th Feb 18
Platinum Looks Poised for Surprising Gains This Year - 12th Feb 18
Friday's S&P 500 Stock Market Bounce To Continue, But Selling May Resume - 12th Feb 18
The Inflation Trade and Bond Yields Rising Result in Equities Correction - 12th Feb 18
February 2018 Stock Market Crisis – What Next? - 12th Feb 18
How To Profit From The Bitcoin Bloodbath - 12th Feb 18
The Philippine Economic Dream Could Be Within the Reach  - 12th Feb 18
Is the Stock Market Correction Over? - 12th Feb 18
What Does the Stock Market Decline Mean for Gold - 12th Feb 18
Addicted to SMIGGLE Mega Review, Pencil Cases, Stationary, Back Packs, Drinking Bottles, Toys... - 12th Feb 18
Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - 11th Feb 18
The Fed’s Impossible Choice, In Three Charts - 11th Feb 18
US Stock Market, Gold, Silver and the Macro Backdrop - 11th Feb 18
After Two weeks of Stock Market Decline, People Are Ssking, “Are We There Yet?” - 11th Feb 18
How to Grow Tomatoes From Seeds, Homegrown Organic Money Saving Gardening - 11th Feb 18
Youtube KILLS ALL Small Channels with New DeMonetization Rules - 11th Feb 18
Lot of Stock Market Damage to Be Caused before New the Fed Chief Will React - 10th Feb 18
Best Ways to Make Money - 10th Feb 18
Stock Market Selling Unleashed! - 10th Feb 18
How to Get Free Youtube Subscribers to Get to 1000, YTpals, Subpals, SubmeNow, Do they Work? - 10th Feb 18
Stock Market Buy or Sell? This Insight May Help You Decide - 9th Feb 18
Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - 9th Feb 18
What Is Stock Market Volatility Telling Us Now? - 9th Feb 18
Crude Oil $100 Price in 2019? - 9th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

ECB Educational Inflation Video is Propaganda with a Capital ‘P'

InvestorEducation / Inflation Jul 02, 2007 - 05:55 PM GMT

By: Mike_Hewitt

InvestorEducation The European Central Bank (ECB) has a “educational” video on Price Stability. The video is intended to be a teachers' aid. It, and associated teacher aid materials, can be downloaded from the ECB website here . For quicker viewing, the video can also be seen on YouTube.


Price Stability: Why It Is Importatant To You
ECB Video served by Youtube

The purpose of this essay is to comment on the misleading portrayal of the ECB that this video presents.

The Inflation Monster

One of the most disturbing things about the video is that inflation (as defined as an increase in the price of goods) is depicted as a grotesque monster that somehow needs to be contained by the gallant forces of the Central Bank.

This is completely absurd.

If I lit your house on fire and showed up with the fire brigade, am I a “fire-fighter”? The answer is obviously not. I am an arsonist and should be prosecuted for my criminal activity. In a similar manner, in no imaginable way can the Central Bank ever be considered as an “inflation-fighter”. They are the very source of inflation when they create it out of thin air!

The entire fiat monetary system is immoral and should be illegal . The Central Banks counterfeit money. They then loan this newly created money into various accounts of private banks. These private banks, through fractional reserve banking laws, then commit fraud by lending out more money than they have. These activities amount to no less than a hidden form of theft on the citizens. Every unit of currency created by the Central Bank dilutes the value of the currency already in circulation.

Anybody who believes that his or her 4% savings account is staying ahead of inflation is ill-informed. Central Banks of the world's major industrialized western nations have been increasing the amount of money in circulation by 8% or more every year. Thus in this example, the holder of the savings account is losing at least 4% of their purchasing power every year.

Calculation of Price Stability

The calculation for price stability (otherwise known as Consumer Price Index or CPI inflation under 2%) is not the straightforward year-on-year price comparison of the prices for a “basket-of-goods” as depicted in the video. The following is a list of various calculations that central banks use to “massage” the CPI inflation numbers:

  • Substitution : Replaces items within the basket to alternatives should the original item increase in price. Chicken could be substituted for beef should the latter increase faster in price. This manipulation alone brings into question the validity of the calculation. The very purpose at the onset was to measure the price increase of the original “basket-of-items”!
  • Rent vs. Housing Costs: Another form of substitution. Due to the rapid increase in housing prices, slower rising rent prices have been substituted.
  • Seasonal Adjustments : Removal of prices increases during peak consumption times of the year, such as gasoline prices during the summer or heating oil during the winter.
  • Hedonics : Price adjustments for quality. For instance, consider computers that are steadily improving. Even if the sticker price remains constant, for the purposes of the CPI inflation calculation, the price has diminished because you are now getting “more” computer for your money than before.
  • Geometric Weighting : Instead of using simple arithmetic addition, the use of geometric (logarithmic) addition greatly smoothes out fluctuations, as anyone who works with statistics is fully aware of.
  • Core Rate : There is increasingly more attention being given to the “core” CPI inflation rate that strips away volatile food and energy prices which are often the first consumer goods to respond to changes in the money supply.

After these adjustments, the official CPI numbers no longer represent the reality of the true price increases facing consumers. Anybody who has bought groceries or filled up their vehicle with gasoline can tell you that prices have been increasing significantly more than two percent per annum. Trying to contain this fictitious number under two percent is nearly meaningless in terms of maintaining true price stability. One could also ask - why two percent? Why not zero percent on an unchanging “basket-of-goods”? If the Central Banks didn't create money in the first place, they wouldn't need to measure CPI inflation in order to manipulate interest rates.

The Deflation Monster

The banker in the video explains that deflation is another evil that needs to be contained. He explains that in the event of deflation, people will refrain from purchasing goods because their money will buy them more in the future. Perhaps the banker can explain why nobody owns a computer or any other electronic device or subscribes to any telecommunication service because they are waiting for them to fall in price even further. The justification is clearly fallacious. A fall in prices increases demand.

Decreasing prices are beneficial to consumers - period. The simple reason why deflation is so terrible is that the burden of debt increases as money appreciates in value. It is a dire threat to those who owe money - and the government owes a lot of money!

Technological advances and distribution innovations have reduced the amount of resources required to produce and deliver goods to consumers. Only in our modern-day fiat monetary system of ever-depreciating currencies will the prices of these goods increase.

Conclusion

The purpose of this light-hearted video is to educate the viewer with a brief overview of the functions of the ECB. In actuality, it provides little fact and completely avoids addressing important issues. It depicts the ECB as an institution serving the public good by keeping prices stable and completely avoids discussing the fact that the ECB is the one responsible for the ever-decreasing purchasing power of the Euro by continually creating more of it.

By Mike Hewitt
http://www.dollardaze.org

Mike Hewitt is the editor of http://dollardaze.org a site about the current fiat monetary system and how to best position oneself using hard assets such as gold and silver along with shares of resource companies.

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

Mike Hewitt Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

matthew
19 Jul 07, 02:10
ECB Educational Inflation Video

I am a mortgage broker for the past 12 years. Facinated with how the money is created. If you ever have a seminar I can go to please put me on that list.

It would be incredible to meet a person like you in person.

Very few think about, care about or try to understand how all this works.

Thank you so much for sharing all this good data. I would pay for more as well. So if there is something I could join please contact me. Matthew R. Marshall.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules