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
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

The Fed Misrepresenting Inflation to Justify Inept Policy

Economics / Inflation Jun 26, 2014 - 10:25 AM GMT

By: EconMatters

Economics

Government Data is useless

The final GDP calculation came out on Wednesday, and we have several takeaways from this latest revision. First of all government reporting data is all over the place, and not in a good way. I have no confidence that any of these numbers are actually right, and second with an ever changing economy, most of these data gathering tools are obsolete at best. The GDP number has now become a complete farce, the components used to calculate growth are so useless that we literally could have a plus 7% GDP quarter, and it mean absolutely nothing regarding the real health of the US economy!


PCE & CPI both Under-Report Real Inflation

But now we know why the Fed likes the PCE calculation for quoting the level of inflation in the economy because it is skewed to a lower number even with the joke that is government numbers these days regarding inflation levels and pressures in the economy. It is bad enough that the government keeps tweaking the CPI Data points to change what they measure in terms of inflation, and now that this number starts rising to 0.4% for a month, well above their targeted level, they search for some lower inflation reading metric in the PCE measure. While the PCE number is skewed to healthcare and the CPI to housing, both of these measures severely underreport real inflation because most Americans cannot afford healthcare or housing.

Many Americans just avoid healthcare spending altogether and only show up to emergency rooms when they can no longer ignore a health issue and they aren`t paying anything here that shows up in terms of the inflation numbers that line up with actual health care cost increases of the last decade! Another interesting relation is that Healthcare Debt for consumers is one of the most prominent reasons for declaring personal bankruptcy so consumers aren`t actually paying for this healthcare further downplaying the actual real inflation that consumers who do pay for healthcare are experiencing in the economy.

It seems with every inflation gauge they are cookie cutter archaic and massively antiquated, i.e., created in a different era that fails to capture the proper nuances of how consumers have adapted to higher inflation pressures. All the inflation metrics skew towards underreporting inflation in real terms! Take housing for example, with the state of Boomerang Kids living much longer at home and group living arrangements out of necessity; both of these inflation measures from a historical context severally underestimate real inflation in the US economy!

The reason these living arrangements and the necessity for two parent income producing households is due to much higher inflation levels in the economy that require Americans to adapt, i.e., they cannot afford the alternatives in practical terms relative to historical norms and an apples to apples comparison of living standards. This is the hidden inflation that Fed induced policy is directly responsible for, and is underreported in the real inflation numbers based upon out of date reporting measures interpreted by outdated economists who haven`t published anything relevant in economic theory for 20 years!

Real Inflation has been all around us for Decades, and the last 5 years of a weak economy, has exhibited much higher inflation in Real Terms that fail to be captured in old-fashioned inflation gauges. Furthermore, when Inflation actually does start showing up in these “Useless Inflation Measures” you better start paying attention because that means Real Inflation is getting dangerously out of hand!

Real Inflation is Reducing Disposable Income for Consumption in Discretionary Retail Spending

You want to know why retail sales numbers are so tepid, it is due to much higher inflation levels taking a huge hit on disposable income, average consumers are robbing Peter to pay Paul in terms of much higher food, gas, entertainment, cable, internet, and insurance costs (our home owner`s policy just went up 25% with no claims). Throw in higher taxes in all forms and there is Real Inflation out in the US economy that is much higher than these ridiculously low government numbers.

Read More >>> The Inflation Era Has Arrived!

The Fed is starting to lose credibility on many fronts, and downplaying inflation just to continue on with this process of monetizing debt with excessive money printing is one area where market watchers are starting to discuss privately. The Fed is sacrificing real growth by incentivizing non-productive uses of capital by banks and corporations chasing Yield Arbitrage investments instead of positive GDP and Job Creating policies of project and lending investments. The Fed is maintaining this illusion through abnormally low interest rate policies that have their own cost in terms of hurting savers, and flattening out the yield curve further disincentivising banks to lend to business for real economic growth opportunities. And at the same time hamstringing consumers with higher costs in terms of Real Inflation and less overall disposable income in their pockets!

Would the Economy actually be more Productive without Fed Intervention?

It is looking more and more that the US economy would actually be doing much better by having the Federal Reserve just get out of all market interventions period. There are plenty of areas of strength that are doing just fine all by their own like energy, technology and entertainment, and actually would probably be doing much better if banks were allocating more money to these growth opportunities, and less to paper money investing schemes. Shoot with a negative 3% GDP quarter inflation should have been negative, which should scare the heck out of the Fed in terms of what is really going on with inflation right now!

Read More >>> How Fed's Low Rate and Wall Street Yield Trade Hurt The Economy

The central banks need to downplay inflation, underreport it, and find metrics that support their case of low levels of inflation in the economy. They are talking their proverbial book, justifying their policies of the last five years, and even their existence as a necessary function in the economic wheel. As it is starting to really manifest itself, the idea that the economy would in fact be doing much better all on its own with no Fed involvement whatsoever, let alone that their policies have any beneficial impact on spurring economic recovery and growth!

The Inflation Lie & the Fed`s Ultimate Power and Credibility Demise

And the more they speak about economics, the economy, policy tools and their impact on society it becomes apparent that this discipline ‘economics’ has lost its way, and I am afraid that the inflation lie is what is going to be their undoing. As that is the nasty part about inflation, if you disrespect it, downplay it, fail to keep it in check, once it breaks out for all to see, and in undeniable fashion, by the time the Fed realizes it is a problem, because it is so enormously apparent in the numbers, it is far too late to do anything about it! We are basically right at the cusp of this inflation stage right now, and the Fed is asleep at the wheel, trying to justify their whole existence and tenure of failed policies of the last two decades, needing to hold onto the low inflation meme to continue the status quo!

Better Results Just Sending Monthly Checks to Average Citizens

The Federal Reserve is such an inept body at this point, literally spending 4 Trillion with these subpar anti-growth monetary initiatives that have really elevated inflation for five years well beyond an economy growing at 2% annually, which has inevitably hurt consumers in terms of real disposable income, and at the same time incentivizing paper investments over project investments.

It could seriously be argued that the Fed would have had much better results in stimulating economic growth by actually giving the 317 million citizens an annual check, or a monthly check instead of buying bonds, downplaying inflation and keeping interest rates in fantasyland compared to historical norms.

The Law of Unintended Consequences

Unhealthy interest rates are going to foster unhealthy investments, and ultimately are going to lead to unhealthy economic outcomes, when will they ever learn the Law of Unintended Consequences? Moreover, when calling outright Inflation “Noise” to continue on the path of exacerbating these “Unintended Consequences” it is time for a house cleaning at the Federal Reserve – get rid of the economists and start putting some entrepreneurs and small business owners on the Board. The career “Academic Has-Beens” from the economics field have been an abysmal failure for the last 20 years, it is time for a rethinking of what and who constitutes the Federal Reserve Board!

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2014 Copyright EconMatters - 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.

EconMatters Archive

© 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