Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Inflation Asides

Economics / Inflation Jun 27, 2011 - 06:18 AM GMT

By: Fred_Sheehan

Economics

A note from a reader: In 1977 I accidentally ran into a high school friend of mine who had taken an advanced degree in mathematics and statistical analysis. He was working for [Federal Reserve Chairman Arthur] Burn's Fed. He informed me that he was working on a new methodology of calculating the inflation rate. When I asked what it was based on he demurred saying it was "Classified Secret." I was truly stunned. He did imply that, when done, the new methodology would greatly reduce the reported value. Sure enough, during the Volcker Fed, the new methodology was introduced and has been modified since then to greatly reduce the reported numbers. It made the Volcker effort at controlling inflation seem much more effective than it actually was.


However, if one takes 1965 as the starting year for the present acceleration of inflation it can be shown that, on average, the cost of living has gone up about 1400%. And, the total money supply has also grown - up to 2008 - about the same. So, a person willing to do the research can always by-pass short-term obfuscation and see the truth through widely available published costs of living.

Furthermore, there is qualitative inflation on top of the quantitative. Now, the Fed constantly claims that a rise in costs is offset by a rise in quality and so cancels out. This has been true in the field of micro-electronics. However, in key areas of food and housing this is not so. In particular many food costs have been hidden by a reduction in amount and quality of the item. Just look at the reduction in the size of a can of tuna fish since 1965. The best tuna has gone down from 8.5 to 5.0 oz while rising over 1600% in price while the quality has suffered so that producers use every trick in the book to make lesser cuts of the fish look like albacore. So the actual rise in price is much, much more than the nominal rise.

Another thoughtful note from a reader:

Thanks for your good work. I just read your piece "Sick Minds" on Safe Haven and it occurs to me that a price index should only measure price changes of a fixed basket of goods. A consumer price index should be based on how the median household spends its income at time A and how those prices change going forward. That includes taxes! Another price index should be generated for the median household of seniors.

The current gov't approved methods are for a subsistence price index (SPI).

Clearly the government can't be trusted to provide meaningful statistics and this should be farmed out to universities. Government meddling into how the statistics are generated should be outlawed. The universities should face peer review on whatever series they are charged with generating. Get rid of the BLS and the other government statistics generators and fund the universities for this work.

My reply:

Thanks, I agree with what you write with one reservation: whether the academics could be trusted. Celebrity economists - the Fedheads, Nobels, CNBC heroes - would be the go-to "experts" who would fashion the peer structure. These supercilious windbags already live off government money that funds their economic departments, academic chairs funded by Interests (the Alan Greenspan Chair in Economics at New York University, funded by hedge-fund manager John Paulson, who made his fortune off the mortgage collapse), their web of memberships on corporate boards, their insatiable appetite for continual exposure on CNBC, the money they receive to write studies for vested interests (e.g., the Stiglitz, Orzag(s) thumbs-up for Fannie Mae; Mishkin's celebration of Iceland's banking system) - I hope that someday this scandal is seen for what it is, at which point the academics could be trusted to establish such a peer review.

If we reached that point, we might also be able to trust the BLS, but I'm with you in trashing it. I think Sir John Cowperthwaithe, Britain's financial secretary to Hong Kong in the 1950s, was on to something. He did not allow his government to collect statistics for fear the statistics themselves would define policy. In the U.S., this is seen in our infatuation with "growth" no matter the human and material wreckage choking in the gutter, a sure sign of our government's and of the economic establishment's senility.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

© 2011 Copyright Frederick Sheehan - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules