The Government's Inflation Figures Are a Lie

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

Are stocks expensive or cheap? How much do you earn? Is the US economy growing? Are we getting richer…or poorer?

It all depends on how you measure inflation. If nominal (unadjusted for inflation) GDP is falling at a 0.8% annual rate — as it did during the first quarter — and if consumer prices are going up at an annual 2.1% rate — as the feds say they did during the first quarter — then you get an annual real (inflation-adjusted) ‘growth’ rate of MINUS 2.9%.

Real incomes, too, depend on how you measure inflation. The median household earns less this year than it did in 2000. Today’s level is about $50,000. This is said to be about 7% lower than it was 13 years ago.

‘Disappointing’. ‘Worrying’. ‘Lackluster’. These are some of the words the press has used to describe this situation. Had the numbers been more truthful, we would have heard words like ‘disastrous’, ‘catastrophic’ and ‘oh sh*t!’

Jiggling and jiving

But heck, we don’t trust numbers…especially when we make them up ourselves. Here’s Barron’s with more evidence 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% since 2000, the institute’s Everyday Price Index (EPI) is up 69%. 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.

Barron’s goes on to tell us we can avoid these higher costs by not owning a house or a car… by not eating much and remaining young forever. "For aging Americans," the report continues, "it’s rising health-care costs that really hurt."

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

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 inflation, unemployment and GDP growth correctly…it’s that they believe they have some special power — never demonstrated — to make these things turn out better than they otherwise would.

Turning water into wine

The US Federal Reserve believes it can turn water into wine…and multiply the loaves and the fishes. It claims to be able to perform these miracles by manipulating the price of credit. This, as we said yesterday, is either remarkably naïve…mindbogglingly stupid…

…or just 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 Americans afford good and services.

Nor is helpful to overstate (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 repaying their loans.

They simply roll over’ their debt. They take on new borrowings to pay for the old borrowings. And they count on the central bank to provide much of the funding.

This is the system that has evolved over the last 100 years — since the founding of the Federal Reserve in 1913. Fraudulent numbers. Jackass theories. Price fixing. Market manipulation. Bubbles. Busts. And bum outcomes.


Bill Bonner
for Markets and Money

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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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