Hiding a Recession

[Borodog]

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Post some numbers please. I think I follow your argument but we should at least see the numbers you're working with to come to those conclusions.

National Economic Accounts

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adios,

The best numbers I have are anecdotal, and the charts I've already posted, compiled by John Williams at www.shadowstats.com. Note that I am NOT claiming that the original CPI calculation is perfect, since I don't really believe that aggregates such as the CPI show what econocrats would like them to show. What I am saying is that the CPI has been changed numerous times over the last 30 years, and each change has been in favor of a decreasing measure of price inflation. I find this to be not only far from coincidental, but right in line with my actual experience of price changes over the past 4, 5 or 6 years.

Peter Schiff's assessment of the deflated inflation situation is in agreement, and I have always found him to be right on the ball:

http://www.europac.net/externalframeset.asp?id=10462

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For example, on Wednesday the government told us that consumer prices as measured by the CPI rose by only 2.8% over the past year. My estimate is that the actual rise was at least three times as great. The report showed that energy prices only rose by only 5.3%. Given that crude oil prices are up over 35% and heating oil prices are up 20% during that time period, how is it possible that energy prices are up only 5%? Are other energy costs falling to compensate -- firewood perhaps? The same CPI report claimed that medical costs rose by 4.6%. As a small business owner, I can't remember the last time my company’s health insurance premiums rose less than 5% per year, and they typically rise at an annual rate of more than twice that. Perhaps the most incredulous of all the data in this week's CPI report is that food prices only rose by 4.5% during the past year. I don’t know where the guys at the Bureau of Labor Statistics buy their groceries, but I’m spending at least 15% - 20% more for food this year than last. Wheat prices alone have practically doubled in the past year! The last time I checked, people tend to eat a lot of wheat. Does anyone really believe food prices are only up 4.5%?
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As the U.S. dollar weakens, a few analysts are beginning to wonder whether we will now be “importing” inflation as the cost of imported goods rises to reflect the lower value of the dollar. Once again, Wall Street still doesn’t get it. Our inflation problem is home grown. The reason the dollar is losing value in the first place is that we are creating too many of them. Since our biggest export is U.S. dollars, which foreign central banks have been foolishly monetizing, if anything it is our nation that exports its inflation to the rest of the world.
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My guess is that right now inflation is already as bad as anything we experienced back in the 1970’s. Some may argue that rising prices for food and energy are being offset by falling prices for such things as cell phones, iPods, digital cameras, plasma TV, etc. However, back in the 1970’s, prices for similar items, such as television sets, clock radios, digital watches, calculators, etc. were also falling in price. However, despite such price declines, the more honest CPI yardsticks we used at that time still recorded double digit annual gains.
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Still, the intoxicating effects that inflation has on nominal asset prices and GDP figures will eventually fade. When this happens Wall Street will sober up to the reality that the U.S. economy has actually been mired in recession for years, and that U.S. stocks have been in a stealth bear market all along. Priced in gold, euros, or Canadian dollars, (which are more accurate ways to adjust for inflation than phony government numbers) both the U.S. stock market and U.S. GDP have declined by approximately 58 %, 17 % and 21% respectively since January 2000. No wonder the government and Wall Street hang their hats on official inflation measures.
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Like a student allowed to grade his own report card, he can ditch his classes, not do his homework, flunk his exams, yet still bring home straight A’s. As long as Wall Street and the media continue to represent government inflation numbers as if they had any validity whatsoever, inflation is only going to get worse.


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[adios]

In your OP you wrote:
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What is the significance of a 10% CPI? Well, the CPI is used to "deflate" GDP, which we are told was nearly 4% last quarter. Uh, what? How is this absurd number arrived at? Well, they only deflated the nominal GDP by 0.8%. That's right. You read that right. In calculating GDP last quarter, the government assumed price inflation was 0.8%. That's the lowest since the Eisenhower administration.

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Actually I found the data you're citing:

GDP Data


Could come at this a couple of other ways but all the data is generated by the government so it probably wouldn't mean much one way or the other to you.

I'm not saying you're wrong necessarily. If you look at all the data inflation in the 70's was much worse. How long do you think the government may have been erroneously reporting the data? Inflation in the 70's could have been understated as well.

[Borodog]

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In your OP you wrote:
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What is the significance of a 10% CPI? Well, the CPI is used to "deflate" GDP, which we are told was nearly 4% last quarter. Uh, what? How is this absurd number arrived at? Well, they only deflated the nominal GDP by 0.8%. That's right. You read that right. In calculating GDP last quarter, the government assumed price inflation was 0.8%. That's the lowest since the Eisenhower administration.

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Actually I found the data you're citing:

GDP Data


Could come at this a couple of other ways but all the data is generated by the government so it probably wouldn't mean much one way or the other to you.

I'm not saying you're wrong necessarily. If you look at all the data inflation in the 70's was much worse. How long do you think the government may have been erroneously reporting the data? Inflation in the 70's could have been understated as well.

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As someone has already pointed out, if the current CPI definition had been in place, inflation during the 70s would never have exceeded 3%.

I have no reason to believe that there was any systematic manipulation of inflation metrics prior to the early 1980s.

[DcifrThs]

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I have no reason to believe that there was any systematic manipulation of inflation metrics prior to the early 1980s.


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why? what changed?

thanks,
Barron

[adios]

Thanks, that focuses it more. The early eighties marked the start of the disinflation trend. You may be right. The fact that it is inflection point in Fed policy and inflation trends gives your argument more credibility IMO i.e. that inflation has been significantly understated. I'm going to think about this some more and do some investigating.