{"id":36043,"date":"2013-02-08T14:46:45","date_gmt":"2013-02-08T19:46:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36043"},"modified":"2013-02-08T12:47:30","modified_gmt":"2013-02-08T17:47:30","slug":"the-great-inflation-lie","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/08\/the-great-inflation-lie\/","title":{"rendered":"The Great Inflation Lie"},"content":{"rendered":"

By Bill Bonner<\/strong><\/p>\n

Who are the bigger liars? Argentine feds? Or American feds<\/a><\/strong>?<\/p>\n

News flash from the pampas. From the Associated Press: <\/strong><\/p>\n

Argentina announced a two-month price freeze on supermarket products Monday in an effort to break spiraling inflation.<\/em><\/p>\n

The price freeze applies to every
\nproduct in all of the nation’s largest supermarkets — a group including
\nWalmart, Carrefour, Coto, Jumbo, Disco and other large chains. The
\ncompanies’ trade group, representing 70% of the Argentine market,
\nreached the accord with Commerce Secretary Guillermo Moreno.<\/em><\/p>\n

The Argentine government moved to stop the price increases it previously denied were happening. It said inflation<\/a><\/strong> was running at only 10% a year. Turns out, it’s more like 30%.<\/p>\n

But our focus today is not on the land of the gauchos; it’s on the
\nland of honchos, HoJos and bozos. The land north of the Rio Grande.<\/p>\n

Before we come to it, though, another glance south of the Rio de la Plata. From Russia Today:<\/p>\n

The International Monetary Fund has
\nissued Argentina with a “declaration of censure” for providing
\ninaccurate inflation and GDP data and has given it until September 29 to
\namend the problems or will impose sanctions.<\/em><\/p>\n

The IMF Friday called on Argentina to fix its statistics “without further delay.”<\/em><\/p>\n

The IMF said it would review
\nArgentina’s progress in November and warned that if the problems are not
\nsorted then it could impose sanctions on the country. This would bar
\none of South America’s biggest economies from voting on IMF policies and
\naccessing financing. <\/em><\/p>\n

America’s Own Funny Numbers<\/h3>\n

When will the IMF look at America’s inflation figures?<\/p>\n

We never paid much attention to the claims that our own feds were
\nintentionally falsifying the numbers. Too many honest statisticians at
\nthe Bureau of Labor Statistics. Many of them Republicans. A few
\nTea-Partiers, even. Too many different points of view to pull off a real
\nconspiracy.<\/p>\n

Instead, the feds try to report the number correctly. Still, with so
\nmuch fudge in the kitchen, they were bound to get some on their fingers.
\nNot that anyone intended to defraud the public<\/a><\/strong>. It’s just that institutions have biases of their own. Often the people working in them don’t even notice.<\/p>\n

Adding up the cost-of-living numbers has built-in complications.
\nPeople of reasonable intelligence and ordinary goodwill can come to
\ndifferent conclusions about how it should be done. Then even a small
\ninstitutional bias — like an old watch near a compass — can lead you
\nin the wrong direction.<\/p>\n

At first, the results differ little — one way from another. And
\nthen, the institution takes “ownership” of the method used. Reputations
\nare on the line. Careers depend on it. A whole legion — with its own
\nhierarchy, creed, orthodoxy, pensions — develops.<\/p>\n

And then there is no retreating… no second-guessing…no arrieres
\npensees. Because now too much depends on it. Changing it would cost
\nbillions… or trillions… of dollars to the state. And it would change
\nthe way people think too. Fessing up becomes unthinkable.<\/p>\n

That is what happened with America’s consumer price index. Small,
\ninnocent distortions grew to become grotesque and monstrous. But the
\nfeds can’t admit it. There’s too much at stake.<\/p>\n

Peter Schiff describes what happened:<\/p>\n

Since the 1970s the preferred
\ngovernment inflation metrics have changed so thoroughly that they bear
\nscant resemblance to those used during the “malaise days” of the Carter
\nyears. <\/em><\/p>\n

Government and academia defend the
\nintegrity and accuracy of the modern methods while dismissing critics as
\ntin hat conspiracy theorists. <\/em><\/p>\n

But given the huge stakes involved,
\nit’s hard to believe that institutional bias plays no role. Government
\nstatisticians are responsible for coming up with the methodology and the
\nnumbers, and their bosses catch huge breaks if the inflation numbers
\ncome in low. Human behavior is always influenced by such incentives. <\/em><\/p>\n

Beginning in the early 1980s the
\nmethodologies were altered to compensate for a variety of consumer
\nbehavior. The new “chain weighted CPI” for instance incorporates changes
\nin relative spending, substitution bias, and subjective improvements in
\nproduct quality. <\/em><\/p>\n

Essentially these measures report not
\njust on price movements, but on spending patterns, consumer choices, and
\nproduct changes. This is fine if the goal is to measure the cost of
\nsurvival. But that is not the purpose for which these metrics are meant
\nto be used.<\/em><\/p>\n

From New York to Buenos Aires<\/h3>\n

The good intentions were there. But so was the road to Hell. Schiff
\ntook out the fiddles and tried to calculate how much prices had actually
\nchanged:<\/p>\n

We randomly identified price changes of
\n10 everyday goods and services over two separate 10 year periods, and
\nthen compared those changes to the reported changes in the Consumer
\nPrice Index (CPI) over the same period. The 10 items, which we selected
\nare: eggs, new cars, milk, gasoline, bread, rent of primary residence,
\ncoffee, dental services, potatoes and electricity. <\/em><\/p>\n

Between 1970 and 1980 the officially
\nreported CPI rose a whopping 112%, and prices of our basket of goods and
\nservices rose by 121%, just 8% faster than the CPI.<\/em><\/p>\n

In contrast, between 2002 and 2012 the
\nCPI rose just 27.5%. But our basket rose by nearly double that rate —
\n52.1%! So the methods used in the 1970s to calculate CPI effectively
\ncaptured the price changes of our goods, but only got half of those
\nmovements more recently. How convenient. <\/em><\/p>\n

Just to make sure, we ran the same
\nexperiment with 10 different goods and services. This time we chose:
\nsugar, airline tickets, butter, store bought beer, apples, public
\ntransportation, cereal, tires, beef and veal and prescription drugs. The
\nresults were notably similar. The basket increased 1% faster than the
\nCPI between 1970 and 1980 and 32% faster between 2002 and 2012. In both
\ncases we selected a random array of food and non-food items. <\/em><\/p>\n

Today, thanks to small course changes by the Bureau of Labor
\nStatistics back in the 1980s, the CPI is far from where it ought to be.
\nIt set out for New York… and it arrived in Buenos Aires.<\/p>\n

If other alternative calculators — such as John Williams and
\nChapwood Finance — are right, the U.S. CPI is more off-course than the
\nArgentines’ heavily criticized numbers. Real price increases in
\nArgentina are believed to be three times the official number. In the
\nU.S., the feds say prices are going up at a 2% rate. Williams and
\nChapwood say the real rate is 10% — or five times as much!<\/p>\n

But wait. If these numbers are correct, it changes everything. The
\nfeds use these crooked CPI numbers to deflate GDP. They use them to
\nadjust Social Security and government pensions. They use them to tell
\nyou if you’re making money on your investments… or losing money. They
\nuse them to keep tax rates even with inflation too.<\/p>\n

Like True North, every household financial pilot depends on them. And
\nif the official CPI were significantly understated, the results would
\nbe catastrophic!<\/p>\n

Just for openers, the GDP would be in severe decline — revealing
\nthat the U.S. economy has been in a depression for the last four years.<\/p>\n

More to come!<\/p>\n

Regards,<\/p>\n

\"Bill<\/p>\n

http:\/\/www.billbonnersdiary.com\/<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

By Bill Bonner Who are the bigger liars? Argentine feds? Or American feds? News flash from the pampas. From the Associated Press: Argentina announced a two-month price freeze on supermarket products Monday in an effort to break spiraling inflation. The price freeze applies to every product in all of the nation’s largest supermarkets — a … <\/p>\n

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