patrick.net

You think federal policy will bias towards inflation? I thought this was fairly obvious. Your current Fed Chairman wrote tons of papers, has given several speeches, and even wrote a book on how he believed any price deflation will lead to a depression and he is hell bent on creating inflation through a process he calls "inflation targeting". He has followed every single hypothetical action he laid out in those papers. He targets the inflation rate to be something like 3 to 4%. Now, given that the BLS understates inflation typically by 4-6%, Bernanke, may end up automatically targeting a 10% annual inflation rate. This is absent the negative pressure felt by the dollar from foreign central banks diversifying their reserves, in such a case inflation can climb into the double digits near 20%.

theoakman says

Now, given that the BLS understates inflation typically by 4-6%

That's a given? Could you give any supporting evidence for that statement?

The government wants inflation - I want an affordable house.

which one of us will get what we want first?

tatupu70 says

theoakman says

Now, given that the BLS understates inflation typically by 4-6%

That’s a given? Could you give any supporting evidence for that statement?

Sure, go to any sight that still calculates inflation using the metric we used prior to Bill Clinton's presidency and you find that the metric they use today is consistently below the traditional measure of inflation by a range of 4-6%. The inflation metric used today simply excludes the goods/services that go up in price to bias reported inflation to the downside. And that doesn't even take into account how the metric previously used circa 1980 was biased slightly downward to force middle class Americans into higher tax brackets.

Do you really believe that we averaged ~6-7% inflation in 2000s? That doesn't pass the smell test as far as I'm concerned.

tatupu70 says

Do you really believe that we averaged ~6-7% inflation in 2000s? That doesn’t pass the smell test as far as I’m concerned.

Go smell some gasoline. Or some food. Or health care. Or college tuition. Even home prices are still well above their 1990s prices.
The only things that got cheaper this decade were cell phones and televisions. Or did you really believe inflation was close to 1% at the end of 2006?

OK--

Of course you cherry picked things that are increasing faster than inflation to make your point. Fair enough. But, do you really think that overall CPI has been 6-7% for the decade? That would mean prices of everything roughly doubled in 10 years. Does that sound right to you?

tatupu70 says

OK–
Of course you cherry picked things that are increasing faster than inflation to make your point. Fair enough. But, do you really think that overall CPI has been 6-7% for the decade? That would mean prices of everything roughly doubled in 10 years. Does that sound right to you?

I cherry picked? These are the things they exclude from the CPI. They cherry picked for me.
Like I said, take a look at food, energy, insurance, college tuition. They have all more than doubled. Gasoline is up 200%. Food is up 150%. It's not unreasonable to make the assumption that the cost of living has roughly doubled in the past 10 years when those two things alone which we all consume on a daily basis have gone up well beyond 100%. So yes, the cost of living has increased substantially. Your inherent focus on the Pre-Clinton CPI is distracting you from the fact that the numbers reported by the BLS are complete nonsense. You asked me for proof the numbers are biased, now you simply want to argue the numbers. This is the way our government calculated it in 1980 before they decided to stop counting certain goods and services we just happen to consume every day of our lives.

And no, the prices of everything didn't double. But, the prices of some things went up 200%. The prices of other things went up 100%. The prices of other things went up 50%. The prices of somethings went up 0%. Add them all up and you roughly get, in my rough estimation, somewhere between an 80%-100% rise in prices. The main thing keeping a lid on inflation has been cheap labor from China. It won't last much longer.

Here's an explanation of CPI from the government website:

The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:

FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services.

Looks to me like gasoline, health care and college tuition and included.

theoakman says

Food is up 150%

No it's not.theoakman says

You asked me for proof the numbers are biased, now you simply want to argue the numbers.

I asked for proof and you gave me a graph from a random blog. That is not proof.

Schultzie, good one!

Oakman, right on. It is well known that CPI stats have been cooked for a long time. The shadowstats website may have more data on this.

Some of the basics are here:

http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index

By the way, C-CPI-U is another scam where instead of measuring price increases (beef went up) they measure how people spent (they bought cheaper chicken instead). Very hokey, and not a "constant quality" measure (to invoke Case-Shiller imagery :)). Note how C-CPI-U (Chained CPI Urban) comes in below plain CPI-U. It does this because it was DESIGNED to do so.

Paul Krugman also explained the reason for the "core-CPI" which excludes food and energy, because those two measures are very volatile and hence do not capture "underlying" inflation well, for some purposes,

The name "core" is very badly chosen, because a regular person can hardly think of anything more "core" to their daily expenses than food and energy. But don't shoot the messenger on that one (him or I). I'm just telling you what the reasoning is. Instead, shoot at the people who misuse core-CPI to claim that inflation is low. I sure as hell do not defend misusing core-CPI.

Oakman,

>>Gasoline is up 200%. Food is up 150%.

Did you rather mean to say that Gasoline price is 200% (up 100%) of what it was in year 2000, food price is 150% (up 50%) of what it was?

In typical usage, "up 200%" means the new price is 100+200=300% of the old one.

I think tatapu70 *might* be more inclined to agree with you if it was the case that the original sentence was just not quite phrased correctly.

The idea that inflation is a solution to anything is Sarah Palin stupid.

1) The most obvious flaw in this genius plan is that most government spending is inflation indexed! Think every entitlement program in existence, TIPS bonds etc.

2) You cannot "recover" by raising prices and lowering wages.

3) Inflation is never secret for long and then we ALWAYS get a wage/price spiral. People notice that they can't afford stuff they used to. Even the dumb ones.

4) China gets hysterical whenever the dollar drops too low and starts threatening us in public. China finances our lifestyle so what they think matters.

5) The US has almost no exports so a boost to this sector would mean nothing for most Americans.

6) We import almost everything we use. Lower dollar equals much lower standard of living.

7) Interest rates would sky rocket. Try paying an interest rate of 18%. How do you think this would affect both the banking sector and the housing sector?

8) "I know everytime inflation comes up, Japan will come in mind." This sentence isn't even in English so I have to guess what it means. Japan has been in DEFLATION for twenty years now. For twenty years the Japanese authorities have been trying to inflate without success.

Anyone that believes that inflation is a cure for anything needs to know that I have a great investment opportunity available in Nigeria. It is only valid for today because you are most trustworthy person - so hurry please!

m1ckey6 says

The US has almost no exports so a boost to this sector would mean nothing for most Americans.

I'm tired of this bullshit. Lower dollar will be a big boost to manufacturing. US exports a LOT.

m1ckey6:

>>The idea that inflation is a solution to anything is Sarah Palin stupid.

>>The most obvious flaw in this genius plan is that most government spending is inflation indexed!

Well, yeah, but you have to realize that the plan of inflation (especially housing inflation) does not exist to benefit the public or their government. It exists to benefit the bankers, so that extend-and-pretend can continue until the losses have been covered up by yet-again rising house prices.

You just need to think about THIS way, and then it suddenly makes sense (if you're an investment/banker). (sarcasm alert).